I think there were two reasons it didn't succeed:
1. It's niche was razor-thin. It required some skill to use, but was so minimalistic that many programmers would prefer to take the extra time to set up a "real" server.
2. Too ahead of its time
I suspect tools like appjet will be commonplace in a couple of years. In fact, I wouldn't be surprised if the "Google Wave" thing is a ruse and that these guys are actually working on an online editor for Google App Engine... This could, in theory, turn Chrome OS into an awesome dev environment, no?