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.