Massimo, This seems to be a GAE file size issue. i checked the error log and even though the file is under 1 mb it was saying that it was too large. Maybe the dimensions of the photo were too large as opposed to the actual disk space of the file? Either way it is not a problem with Web2py, just a limitation that i did not run into until testing on GAE. I used a smaller 50px by 50px photo which was about 15kb and it works fine.
Per Google docs, it says that the upload file size limits is one gig. this is what the development console looks like: Profile_Name (string) amanda Avatar (string) auth_user.Avatar.a05d3cb080ce697d. 4a656c6c79666973682e6a7067.jpg Avatar_blob (Blob) <binary> password (string) eaa0c72ce4ea6949e14bfa4ad575cab6