You can Rails 3 on App Engine, but it won't be especially useful until bundler 10. You should try these instead:
Rails 2.3.5: DataMapper version: gist.github.com/268192
Rails 2.3.5: TinyDS version: gist.github.com/269075
The gems for the development environment include a pre-release appengine-tools gem that provides a pre-release version of jruby-rack.
sudo gem install google-appengine
Create a folder for your app
mkdir rails_app; cd rails_app
Download and run the setup script
curl -O http://appengine-jruby.googlecode.com/hg/demos/rails/rails_appengine.rb ruby rails2_appengine.rb
Start development server
Publish to production
appcfg.rb update .