Fixes putting the virtualenv in user's home

When a virtualenv is not found, it now creates a virtualenv inside the
project's directory structure, not in the user's home directory. This is
cleaner.
Fixes makefile variable reference and installs readline with pip

Makefile variables were referencing local instead of global environment
variables. Hence not finding the right paths. Fixed now to proper
syntax.

Also updates installing readline using pip instead of easy_install which
caused some issues on local development setups.