Can I host Drupal alongwith Google App Engine?
Google App Engine now supports PHP, yes you can. 
But Drupal technically is supposed to run on an Apache server (.htaccess rewrites, restrictions and options) with normal email servers that can be handled using normal PHP's mail(), and PDO, you will need to take care of providing alternatives for the services. 

Mainly, GAE has limitations in emails, SQL, and writable file system. 
Here is a link to a post that helped me a lot: http://blog.boombatower.com/drupal-google-app-engine