The name for the Pixy library is un-Arduino friendly. (i.e. Arduino cannot use it with its current name.) Arduino does not support libraries containing hyphens. The current name arduino_pixy-x.y.z.zip (arduino_pixy_0.1.2.zip) should be changed to something else such as arduino_pixy_x.y.z.zip (arduino_pixy_0.1.2.zip).
Does it work zipped up? I always unzip it and the contents are all in a folder called “Pixy”. I drag that into my “C:\arduino-1.0.5\libraries” directory. Seems perfect from that standpoint. I know you can include libraries from some user area, but I always lose track of where that is, so I just drag it into the main libraries folder.
Thanks for the heads up, Cammy. Please do as BDub said and unzip it first before installing it in the libraries folder. This should work fine.
Thanks.
Scott
Yes, there is two ways to import libraries, dragging the folder into the libraries folder inside of your sketchbook, and using the menu. To do so with the menu, go to Sketch -> Import Libraries -> Add Libraries. Then select the zip file.