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Am I reading that right? They're dropping from 10GB free outbound transfer to 1GB?

Yes. This reduction was announced back on Feb 24 when they allowed billing:

http://googleappengine.blogspot.com/2009/02/new-grow-your-ap...

Do you accept the argument that this will not affect the majority of applications on App Engine? I had the impression that large numbers of apps were already exceeding the existing quotas.

Both parts can be true at the same time.

The AppEngine team says they chose the quotas so 90% are free, so majority will not be affected. There are over 80,000 applications, so if even 1% of them are exceeding existing quotas, that's still 800 apps that are affected.

I do accept their argument, but only because the vast majority of 'apps' are abandoned and use <1mb per day. Fuck, probably at least half have never had code uploaded to them!

This change will affect everyone that actually uses GAE free hosting, even the ones using much less than 1gb/day. The way the free quota works, it's throttled to keep you from using it up all at once -- which means that anyone without billing turned on just took a massive hit to QOS.

...and cutting from 46 CPU-hours per day to just 6.5

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