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App Engine and S3 are options for hosting a distributed application on a 'cloud', taking away the details of running a bunch of servers yourself.
App Engine gives an incredibly easy way to write and deploy an application that can scale to millions of users in no more time than it takes them to propagate it across their network (minutes? hours?) No design headaches, no complex master/slave database failover setups with memcached servers and the rest of it. No headaches managing the fundamental disconnect between an object-oriented data model and a bunch of relational tables. And all in plain, open-source python. Write it and push it out to the world in 10 minutes.
I won't be at all surprised if open source packages come out soon that mimic App Engine's API, since that's almost certainly a good model to design to for scalability. Other services may crop up to compete with App Engine, so that the app you write could be dropped into any or all of them.
App Engine basically lets you handle http requests and use a data store. If you need more control over the architecture than what Google's easy offering gives you (say, heavy backend data crunching) then you should look at EC2. They give you root on all of the machines you care to buy time on, and you can easily shrink or grow your cluster. It's not as easy though, since it's up to you to administer the machines. It's different enough from App Engine that in most situations there is probably an obvious answer as to which is better for the job.
For an easier time on S3, there are also of course a whole bunch of startups that build a service that runs on S3 and then offer their users something easier. Just to pick one example, heroku.com lets your write a ruby on rails app right inside your browser and then deploy it in S3. Pretty sweet.
I don't understand why App Engine would be considered a threat to the facebook platform. You don't host an app inside facebook platform, you host it outside and communicate using standard web protocols. If anything, App Engine provides a new, easy way to write and deploy a facebook application that won't have any trouble scaling to facebook's entire user base, should it catch on. That's good for both platforms.
Yes, you can tie an App Engine app to Google accounts, but that's optional. You could use OpenID instead of Google accounts for an App Engine app. You just need to include the code to do it (hopefully a library will make that dead simple).
App Engine is a hosting platform for developers. Why would it need its own social network? It can tie into all of the social networks that already exist. Orkut already has its own api, just like all the rest of the OpenSocial containers. If you want to build an Orkut application in App Engine, you can include a python Orkut library to ease the task.
The only thing Google could do to make this even easier would be to bundle an Orkut library into the standard App Engine API like they do for the Google Accounts.