Delete the packages/ directory before installing new packages to it.

utils/tests/pub/pub_install_test.dart

 // Copyright (c) 2012, the Dart project authors.  Please see the AUTHORS file
 // for details. All rights reserved. Use of this source code is governed by a
 // BSD-style license that can be found in the LICENSE file.
 
 #library('pub_tests');
 
 #import('dart:io');
 
 #import('test_pub.dart');
 #import('../../../pkg/unittest/unittest.dart');
@@ skipping 75 matching lines @@
     ]).scheduleCreate();
 
     schedulePub(args: ['install'],
         error: const RegExp(@'Warning: Package "foo" does not have a "lib" '
             'directory.'),
         output: const RegExp(@"Dependencies installed!$"));
 
     run();
   });
 
+  test('overwrites the existing packages directory', () {
+    dir(appPath, [
+      appPubspec([]),
+      dir('packages', [
+        dir('foo'),
+        dir('myapp'),
+      ]),
+      libDir('myapp')
+    ]).scheduleCreate();
+
+    schedulePub(args: ['install'],
+        output: const RegExp(@"Dependencies installed!$"));
+
+    dir(packagesPath, [
+      nothing('foo'),
+      dir('myapp', [file('myapp.dart', 'main() => "myapp";')])
+    ]).scheduleValidate();
+
+    run();
+  });
+
   group('creates a packages directory in', () {
     test('"test/" and its subdirectories', () {
       dir(appPath, [
         appPubspec([]),
         libDir('foo'),
         dir("test", [dir("subtest")])
       ]).scheduleCreate();
 
       schedulePub(args: ['install'],
           output: const RegExp(@"Dependencies installed!$"));
@@ skipping 84 matching lines @@
     schedulePub(args: ['install'],
         error: '''
         Warning: Package "myapp_name" is using a deprecated layout.
         See http://www.dartlang.org/docs/pub-package-manager/package-layout.html for details.
         ''',
         output: const RegExp(@"Dependencies installed!$"));
 
     run();
   });
 }