Debugging Django templates doesn't work anymore after SDK update

After upgrading to the latest Google App Engine SDK (1.7.6) I no longer have the ability to debug templates. My breakpoints are ignored and I get the following message in my console:

WARNING: Template path is not available. Please set TEMPLATE_DEBUG=True in your settings.py to make django template breakpoints working

I double checked and my settings.py still has TEMPLATE_DEBUG=True.

Anybody else experiencing the same??