I am currently looking into developing a large application either on App 
Engine or virtual machines like Amazon EC2. I am wondering how well does 
the App Engine scale in comparison to Amazon?

The application I have in mind needs to be storing over 20GB of indexed 
data of small real-time records (usually 10-100kB), be able to retrieve 
that information quickly and be able to scale up to a large amount of 
traffic.

Here is an example of a service similar to what we are aiming to develop 
- https://blockchain.info/ .

Since the project is still in early development, there is no preference for 
one platform over the other - we are still hiring developers, so we can 
hire ones that can develop for App Engine or Amazon. I am more concerned 
about the long-term advantages and disadvantages of choosing one option 
over the other.

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