
If you take the demand of the users into account, Java is of course the right choice as the next language. It might just alienate lots of Java-Developers if a niche language of the server zoo such as JavaScript was to emerge first. Additionally, Java is one Step short of full (albeit sandboxed) JVM support.
To allow for sandboxing, Google wraps some of its own API's into Java SE or JSR–standardized services such as javax.mail and java.net.URL. Also, there is a white-list currently containing 1323 of the 3700+ Java SE 6 classes. Most of the classes that are not available are from the Swing and AWT suites which a web developer will not need anyway. Instead, Google provides the homebrewn GWT.
Thanks to the free and open source Rhino JavaScript Interpreter written in Java, server side JavaScript on the App Engine is rather easy to achieve now. I guess I might have to check it out and report back about it later, so I just signed up for the Java technology preview on my App Engine account.
There are some videos from the Google Campfire event over at Youtube. Most of the time they are rather interesting, plus Kevin Gibbs does a pretty decent imitation of Steve Jobs during the presentation (voluntary or not).