dev_appserver.py doesn't recognize my files
I had the same problem.
Adding python.exe in front of dev_appserver.py solved the problem for me.
c:\Programme\Python27\python.exe C:\Programme\Google\AppEngineSDK\google_appengine\dev_appserver.py MoviesBwu\
I'm trying to get a basic GAE tutorial to work with Windows 7.
So far I have:

Installed python 2.5.4
Installed the current GAE SDK
Set my PATH varible to include python and the GAE
Created a "hello, world" app with an app.yaml and main.py file as specified.

When I call dev_appserver.py . in my app's directory or dev_appserver.py DIRECTORY_NAME one directory above my app, I receive the error message:

Invalid arguments
Application root must be the path to
  the application to run in this server.
  Must contain a valid app.yaml or
  app.yml file.
[A bunch of dev_appserver.py option
  follow this]

What am I doing wrong? and as far as I can tell, I've correctly configured everything.