And Python should be in you system PATH variable. (path_till_python.exe directory). This will make your cmd realize python command. Also try this old post for PYTHONPATH setup, which I don't think is useful here, but still keep it handy for your reference.
EDIT
Navigate to: c:\Python27\Lib\site-packages\xlutils-1.6.0\
Then give the full absolute path to your python executable:
c:\Python27\python.exe setup.py install