No problem, let me know how it goes, my email is in my profile. You question peaked my interest in building such a service on top of GAE with just basic API access and billing for usage. As long as you cover the hosting cost Google charges you, it'd seem to be relatively straightforward. I'm just not sure if there is enough control built in to determine what bandwidth went where.

GAE (can) serve images out of the blobstore, so you can monitor statistics when you tell it to get the image out. Docs are here: http://code.google.com/appengine/docs/java/images/overview.h...

(I expect you'd probably want to use memcache to cache images rather than the blobstore everytime, though)

(Note that you pretty much have to keep the images in the blobstore because you don't have filesystem access. You might be able to keep them in the datastore if you wanted, but those are the only two AppEngine options)

Hmmmm.... The 1 MB limit in and out of the image service could be a problem.

The image service is nice, but really only needed if you want to do transforms. You can serve raw image data out of the blobstore.