Thanks so much for the response. I've looked briefly through the PIL documentation, I think it will suffice once it decodes/encodes jpeg/png and also allows me to access to the raw pixel values themselves.
I'm less clear about the resource requirements - I really should just prototype and profile the app offline first. GAE definitely imposes limits, but I'll have a look at other cloud based options.
If you have any other comments I'd be delighted to hear them. Many thanks!