When you type python into terminal it is looking for python in the search path ($PATH). I have a few different versions of python on my computer. If I type python in to terminal, the interpreter for python2.6 opens. If I run:
ls -l /usr/bin | grep "python"
I see this:
lrwxrwxrwx 1 root root 9 2010-05-12 19:44 python -> python2.6
At least on my computer, the version found when I call python is called because that is what the symbolic link with the name "python" is linked to. I am guessing you will see something similar on yours, except the link will be pointed at python2.5. To fix this simply get rid of the current link and create a new link to the python2.6 file:
sudo rm /usr/bin/python
sudo ln -s /usr/bin/python2.6 /usr/bin/python
Of course, before you do that you should make sure that you have all the needed files (mainly, python2.5 and python2.6 should still be present in the /usr/bin directory). There is also the chance that your python files are not in /usr/bin. There is nothing wrong with having multiple versions of python. I have 2.5 (because I use it at work), 2.6, and 3 on mine. If I want to use something other than the defaultthen I just direct it to that one.