1) Download the latest Eclipse IDE (Galileo at the time of this post) and extract it to the folder of your choice.

http://www.eclipse.org/downloads/

2) Start Eclipse by running eclipse.exe in the folder. Note: there is no installation for eclipse but you must have the Java runtime installed.

3) Install PyDev by clicking on Help / Install New Software and entering the following URL then clicking the Add button:

http://pydev.org/updates

Select all of the options and hit next.

It should prompt you to accept a license agreement. Continue through the wizard and click No when it asks you if you want to restart.

4) Install the correct mercurial version for your operating system. Next install MercurialEclipse. It adds mercurial support directly to Eclipse. Go back to Help / Install New Software and enter the url:

http://cbes.javaforge.com/update

Continue through the wizard and click Yes when it asks you to restart this time.

5) Create a new project in Eclipse by going to File / New / Project / Mercurial / Clone Repository using Mercurial and enter the url:

http://code.google.com/p/web2py/source/checkout

Enter 'web2py' in the Clone Directory Name field.

6) Set the interpreter by going to Window / Preferences / PyDev / Interpreter and choosing the path to your Python binary.

7) That's it!. You can start debugging by finding web2py.py in the project tree, right clicking, and selecting Debug As / Python Run. You can also pass arguments to web2py.py by choosing Debug Configuration from the same menu.