I decided to upgrade to the latest web2py version 1.98.2, then using
the GAE app launcher for windows (version 1.5.2) I deployed it to the
google server. when I try to go to the url<my
application>.appspot.com then I got a server error 500.

I believe there's currently an issue with GAE at google's side.
Several people (most of which don't use web2py) seem to report a similar deployment problem in the google appengine group:

http://groups.google.com/group/google-appengine/browse_thread/thread/fd9ffb279caa9923/f4a9c9df8046705f?lnk=gst&q=error+500#f4a9c9df8046705f

Best regards,
Stefaan.



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