Python 2.7.2 and Google App Engine SDK 1.6.1 on Win 7 Home Premium not working
I am quite sure that is because you had changed the encode from ANSI to another type (such as UTF-8) on app.yaml, 
change it back to ANSI, then you can run the project on google app engine launcher.
BTW, the helloworld tutorial on google has no problem.
I have installed Python 2.7.2 (Win7 32-bit) and Google App Engine SDK 1.6.1 for Win7 on a 64-bit system running Win7 Home Premium.  Default folder locations for both Python and GAE.  When I try to run the helloworld project as described in the Google Python Getting Started doc, the Launcher's "browse" button never becomes active.  The GAE SDK is supposed to do fine with Python 2.7.
Is there a complete listing anywhere of environment variables needed for this setup to work?  So far, all posts I have seen are from users who have gotten well past this absolutely basic step.