All the valid information about the Scratchbox and the SDK for the OS 2006 can be found in this Tutorial and this brief Overview. You should use the Scratchbox environment to build the packages and it is reasonable to use it for testing. But I would suggest to get used a bit to the environment by following the instructions in the tutorial.

Another useful link for you could be the PyMaemo and its tutorial, which mentions as well how to test python application in the scratchbox environment.

Finally regarding to the error you have with the scratchbox it would be nice to give some further details about it. In general Ubuntu is a good choice. But you could also have a look here to use a VMWare image with the right version (I think only the 0.1 version of the image supports the OS you needed). If you need further information post it

Daniel