Google App Engine launched - it's quite a different beast than Amazon's cloud services. The three most notable differences to Amazon's offering:
Free to try - not just during the beta, but apparently forever.
During the beta the allowances are: Apps that use less than 500MB space, 200 teraclockcycles of CPU per day (that's about 1 single-core 2.3 Ghz CPU running at max, continuously, if TechCrunch is reporting the number correctly) and 10 GB traffic daily are free. If they keep that up they could destroy the hosting industry completely. The only plausible deal breaker - other than Google lock-in - above is the 500 MB limit, which is on the small side.
Integrated stack, not a bundle of opportunities - Amazon's cloud services are basic by design and its up to clients to perform the integration. Tons of stacks have sprung up for that, but you have to choose and configure yourself. Google's is one integrated solution, with the restrictions and opportunities that provides.
Actually the integrated stack makes Google App Engine makes one feel bad for the now defunct Zimki. Zimki was a nice idea, but took way too many risks with an alien development environment and an unclear above-toy-level road map. Google's massive infrastructure, however, is perfect marketing for the App Engine as viable above play level. Who wouldn't want Google's uptime and scalability?
Integrated with Google's user base
"Eat shit and die, Facebook"? That could be the end goal, at least. With the Google App Engine you can access Google's user account system, so you don't have to design your own user system. One can easily imagine Open Social extensions to the app engine and/or integrations with e.g. Google Talk
Whether it's going to be a toy or not will be down to pricing above the free level, I guess. The functionality of the Python stack in the SDK seems to cover the basics well, with integrated object storage and email along side the Python CGI.
[UPDATE: Nice google app engine promotion: Jaiku is moving in]