Does scheduler run in a single node environment?

The answer is yes, provided that you installed all the correct components.
If you are running a single node and installed and configured, Keystone, Glance, Networking, Cinder, MySql, RabbitMQ and finally Nova. Then you will have all the components need.

What should happen when you create a instance is, the scheduler will select the only host available, and in your case it will be the host running everything, the scheduler dose not really know the you have installed everything on one server node and the scheduler will just select a registered nova node, as you installed the nova software on this node, this will be the node selected.

Thanks Keith. I have installed all the components. So, I guess scheduler is running on my system. Now, as my understanding goes, when I use nova "boot command", scheduler sends a rpc call to compute manager (/compute/manager.py) and then _run_instance() function takes cares of launching the instance. I am trying to track the flow here. So, I put pdb.set_trace() in that particular function. The issue is, that part of program is not being executed (I am not getting redirected to python debugger). If the scheduler is running, the I should encounter debugger before the output on the screen, shouldn't I?

If you do a 'ps aux' and search for nova-scheduler you will find it is running.

The first thing I would do is check all the logs for errors, depending on how you set up openstack and on what OS will depend on where the logs are. Under /var/log/ is a good starting place.

By searching for errors in the log files will allow you to see what is going on, you should also set the debug to true in all openstack component config files, it make it much easier to find what is going on.

If you find a error please post here with pastebin.

Yeah, I checked it and nova-scheduler is running. Let me check setting debug to true in config files.

Post the logs with debug turned and I will have a look.