It is attempting to zip a directory in the fabfile. You don't need to zip the contents of an app to deploy it. Try deploying using the SDK directly with:
$ python2.5 appcfg.py -A appname update .
replace 'appname' with the name of the app you registered.
$ python2.5 appcfg.py -A appname update .
replace 'appname' with the name of the app you registered.