Yes, but then they basically never improved it. Hardware got dramatically cheaper, but Sun didn't drop prices AFAIK. People started wanting to run Web servers and databases in the cloud, but Sun did nothing. Now they are racing to catch up by productizing Caroline and Q-Layer.
It's true they are focussed on compute, but it's also true that EC2 and AppEngine are not. I'm not entirely sure how you'd, for example run an FEA or CFD job on AppEngine.
I've heard that MPI works (granted, at 1Gbps speed) on EC2 and it's only $0.20/core/hour. When EC2 is cheaper and strictly more flexible than Sun Grid, it's hard to argue why Sun Grid exists at all. Maybe that's why Sun shut it down.
