There were rumors lately that Google will support Java on it's App Engine. Now at least the time frame is clear. Google just announced the roadmap for  App Engine :

10/08 - 3/09

• Service for storing and serving large files
• Datastore import and export utility for large datasets
• Billing: developers can pay for more resource usage
• Support for a new runtime language
• Uptime monitoring site

Given that Google internally only allows to use C++, Python, Java and Javascript I think it's save to bet that either Java and/or Javascript is coming. My guess is that Java will be coming and on top of it they will offer a Rhino based web framework(Rhino on Rails).
The rational for this is that they already showed that they  can make Java work in a virtual environment. Android's Dalvik VM supports VM's running in separate processes to share data, which is something that is crucial for reducing the costs of running Java (securely) in a hosted environment. They also run some of their applications already on Java.
It's also very likely that the will support Java (at least a subset of it) because  GWT, also it can be used on the server with other languages,is Java based.