In the past I've debugged a custom built c++ dll by setting the dll's debug exe as python with my python script. 

I've come across Pytools and I'm curious: Could I have the python script and the c++ dll in the same solution and somehow debug and step from the Python to the C++ and vice versa?

Not currently - we have a feature open (http://pytools.codeplex.com/workitem/210) to enable this, so please vote for it.  We are tentatively looking at this for the next major release so hopefully it won't be too long before it's there.

That would be awesome.

In the meantime, what are people using for a work around?  Has anybody set up two instances VS, one for python and one for C++, running in parallel?

That should be possible but I wouldn't expect the experience to be that great.  In order to have the Python debugging be responsive the C++ debugger will need to be in a running state - so depending on how much you're switching it could be a little annoying keeping things in the right state.  It might also be a little tricky to get both debuggers attached.  VS does make some efforts to prevent multiple debuggers being attached to a process, I'm not sure if it's coordinated between 2 VS instances or not though.