does the script in arctoolbox recognize a straight import of the shapely module? If not, then it may be an installation issue of shapely. This capability has been added to ArcMap 10 for future reference, through the arcpy module
import arcpy
square = [[0,0],[0,1],[1,1],[1,0]]
small_square = [[0.1, 0.1],[0.1, 0.9], [0.9,0.9], [0.9,0.1]]
pnt = arcpy.Point()
array = arcpy.Array()
for a_pnt in square:
pnt.X = a_pnt[0]; pnt.Y = a_pnt[1]
array.add(pnt)
poly1 = arcpy.Polygon(array)
array.removeAll()
for a_pnt in small_square:
pnt.X = a_pnt[0]; pnt.Y = a_pnt[1]
array.add(pnt)
poly2 = arcpy.Polygon(array)
array.removeAll()
print "poly 1 contains poly2 :", poly1.contains(poly2)
print "poly 2 contains poly1 :", poly2.contains(poly1)
