Well, agreed that most of the stuff that Google has put their hands on has been gold, but not App Engine. I think it is too early to judge but why just limit it to Python. People compared it to Amazon's EC2 - my take it is not even close. Amazon is a totally different beast altogether. Well, 10,000 invites to try the program was gobbled up fast, but only time will tell what happens. Another theory could be to compete with Facebook who have opened up and allowed developers to write code against their API and host their apps on Facebook.
Or it could just be another thing that Google can afford to do with the kind of money they have.