After anonymously bashing PayPal in Australia, it's not a huge surprise that Google was caught intentionally blocking AppEngine users from using PayPal too. Could it have been a innocent mistake? Sure, but the circumstance and timing are extremely suspicious.
First, Google was outed after sending an anonymous letter to the Australian Competition and Consumer Commission explaining why PayPal isn't playing fair. Now, developers are complaining that they can't get PayPal to work with their applications hosted on Google's App Engine. Even after a clever work-around was posted, that stopped working too. It certainly seems like someone was making sure PayPal wasn't going to work on App Engine.
A Google employee in the discussion group commented on the situation calling it a "bug" that stems from PayPal being accidentally listed as a phishing site. This is also strange since Google's own anti-phishing tool gives PayPal the thumbs up. The "bug" is now apparently fixed, and developers should be able to use PayPal once again.
If I was Google, and wanted to play fair, I would simply put in my terms of service something that says the following:
Payment Services not permitted on Google App Engine: PayPal, AlertPay.com, anypay.com...
Does that look familiar? Well, it should. Check out eBay's official policy on accepted payment methods. They explicitly state that sellers cannot choose to accept payment using Google Checkout -- likely the root of the escalating tension between these two companies.
What do you think? Was Google intentionally blocking PayPal from their App Engine? Should they put a clause in their terms of service to prohibit PayPal from being used?