ERROR: Line magic function `%matplotlib` not found

Try:

import IPython
print(IPython.sys_info())

Does it report that you are on 'ipython_version' 1.0+? You might be picking up an older version of IPython that do not have the %matplotlib magic.

If you have Anaconda, just do conda update ipython from the command line. No need for removal, easy_install and all the rest.