Java apps have gotten a lot easier to run on Azure this week.  Here's
a video on developing a simple app with Eclipse and deploying in
Tomcat on Azure:

http://microsoftpdc.com/Sessions/SVC50

I don't believe Java on Azure has the same restrictions as Java on
GAE.  For example, you can write to the local filesystem and use
threads.  Using the REST-based Azure Tables datastore (non-RDBMS) with
Lift's ORM might be tricky, but SQL Azure is available via JDBC.  Or,
as far as I know Derby should work.

I think you need to be on Windows to develop though, even though the
example in the video just uses Eclipse.  For one thing, the desktop
version of Azure is Windows-only.

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