Didn't get a beta invite, but based on the site, it looks pretty exciting. This is probably the first time I've ever thought something Google launched as being awesome. All their other launches (Google Sites, Google Pages, Google Base, etc. etc.) were all pretty lame.

The good:

• They scale everything, including your database store (although it's not a true relational database, that may not matter, since most of us don't need true relational database stores)
• (This could be a bad) - It's not competing with EC2 - while EC2 is virtualization, App Engine is a framework you use to take advantage of their grid. But at the end of the day, I guess it could be considered cloud computing
• Google can probably (someday) allow you to leverage their existing sites - imagine importing a Python file that let you automatically leverage Google's Accounts for single-sign on. Or sending contacts from Gmail to your app... neato. Google already offers the APIs - now they can offer the apps to talk to them and make them available in a scalable system.
  

The bad:

• Just Python for now - they say they'll add more languages, so that's cool
• I imagine not having server access is going to be a pain in the ass - the benefit of working on EC2 is that if you need to, you can always just SSH into root and do whatever you need - I'm afraid with App Engine, you'll have to do everything through some interface Google design. This works great if you're doing something common, but not so great if you want to do something off the wall (deploying an app has to go through a script!)
• Google's customer service sucks. I've had bad experiences with AdSense, I've had Gmail go down with no notification (it got buggy o the point I couldn't use Firefox!)... would you really trust this company with your application? At least Amazon has great uptime ...
• How many people actually need to jump through hoops for these scalability gains? The benefit of EC2 and S3 is "scale as you need" - App Engine requires a lot more planning up front...