pip install PIL --allow-external PIL --allow-unverified PIL
This is due to changes in the new version of Pip. Run pip --version and I’m willing to bet you are running 1.5. See the changelog here. This new default behavior enhances security. In PIL’s case, the file you are installing actually comes from effbot.org (thus --allow-external) and PyPi doesn’t have a checksum to guarantee validity (thus --allow-unverified).
Also, you might consider using the Pillow replacement to PIL.