I think this will also open the gates to developers outside the US -- $50/month for hosting might not seem too much to an American, but in other countries it can be a real barrier.
In GAE, you have the privilege of bypassing the administrative stuff - creating/deleting/configuring instances, choosing software, amongst other things. Quite useful for some app categories, like web-apps/web-services for verticals, where you want to concentrate on the business logic and the rest doesn't matter as long as the app works.
EC2 is great too, and attracts developers who require more freedom in terms of software architecture, and choice of components, but comes with a the non-trivial administrative costs. (I do imagine EC2 consultants being in-demand, sooner or later.)
I think both models have potential to succeed, and should be able to nicely co-exist. This free-to-jumpstart approach is perhaps targeted just to stir up AWS demand.