I would say that you have to look at a few factors:
The language needs to:
- be sandboxable
- be controllable
- be expandable
- be different from python
- appeal to people who want to write massively scalable applications
- can be run on developer computers easily
- run on Linux
Sandboxable
The language must be safe to run on Google servers. Portions of the language/VM/modules|libraries must be able to be disabled and/or replaced.
Controllable
Notice how Google uses languages that are not controlled by companies?
Python's BDFL GvR works for Google.
Dunno about Javascript.
Java is open-sourced enough for their taste I suppose.
So the language evolution must allow Google's input at the very least.
Expandable
Google needs to be able to add stuff to the language, and that nearly implies an open-source language. I don't think they are interested in doing an internal fork of an existing language.
Different from Python
Python is mature, easy to learn, and powerful. The new language would have to have significant differences with python, otherwise, why not just use Python. Maybe a very functional language?
Appeal to massive scalability
Execution time would not be necessarily critical, but the language must be able to support easy start and stop, easy provisioning to other servers, and appeal to the sort of people who are into writing massively scalable applications.
Developer computers
The language needs to be able to be easy to install, maintain, and develop for on Windows, Mac, and Linux. It has to be either fully manageable with text editors or already have rock solid tools for editing and managing on these platforms.
Linux
Google servers would run the programs, so these must be able to be safely transferred on google servers and run there, and must be able to be controllable by the Google App Engine load-balancer, so they need to be unixy.
Brainstorming
I don't think it will be Java (too heavy, hard to modify VM), php (too leaky), ruby (hard to modify VM), C++ (can't be sandboxed(that I know of)). I don't think it would be JavaScript either, because it's hard to modularize, and it's not an easy language to learn. That rules out Lisp as well--the hard-to-learn part.
So something else.
Remember though that they want adoption of the tool, and they need a language that would be adoptable by a lot of people and a lot of businesses.
So I lean to C# with mono. I think that makes the most sense. I know it sounds scary but lately the developers of the language are looking at changing C# quite a bit, to incorporate python-like dynamic typing, that sort of thing.
Conclusion
So that's what I think. And if they can pull that off, they will be able to leapfrog the competition. Mono is under MIT X11 license (as of April 2008), and I guess Miguel de Icaza can be hired by Google in the future, along with key team members.
So my prediction is C#.