Today I play yet another session with Google App Engine Python. On one of the GTUG Singapore meeting, Wesley Chun did mention that GAE is actually almost completely compatible with Python 2.6, though GAE is based and run on Python 2.5. There is some minor problem when you are using certain obscure feature or library -- which doesn't really matter.
It's obvious when you install GAE SDK the installer try to detect the presence of Python 2.5.
In fact I found out that I cannot send encrypted user/password authentication when still using the default Python 2.5 on my Windows box. I have both Python 2.5 and 2.6 installation on my box. The installer detected the availability of Python 2.5.
Interestingly, I found it easier to run GAE and install applications to the server when using Python 2.6 on my box.