I don't know. Google is very good at making well-programmed apps, but they don't make them enjoyable to use. They're usually fairly cluttered visually if not in terms of features, and their stuff is minimal to a fault.
Campfire, I think, is still a much better app than Google Talk, partly because it gives the chat so much space to breathe.
And I don't think all PROGRAMMERS care about that, but a significant number of DESIGNERS do.
From talking with some of the AppEngine developers, my impression is that they are trying to get developers to write a bunch of free/cheap applications on Google AppEngine that they can then use to persuade people to sign up for Google Apps for Your Domain. Whatever others don't write (well enough) they will crank out themselves.
Besides that, they already have products that implement large parts of 37Signals's applications' functionality. It is just a matter of them packaging it all up into something more usable and then marketing it. A large part of 37Signals's success is due to marketing; Without Signal vs. Noise nobody would know about them.
See Gmail. Google will do it better. Moreover, the integration with Google Apps/Docs automatically increases its versatility for someone already using Google Apps
Campfire, I think, is still a much better app than Google Talk, partly because it gives the chat so much space to breathe.
And I don't think all PROGRAMMERS care about that, but a significant number of DESIGNERS do.