I'm using the 1.2.1 version of the AppEngine SDK and got the following error trying to update the app:
$ /Developer/Google/appengine-java-sdk-1.2.1/bin/appcfg.sh update target/war/
Reading application configuration data...
Bad configuration: XML error validating target/war/WEB-INF/datastore-indexes.xml against /Developer/Google/appengine-java-sdk-1.2.1/docs/datastore-indexes.xsd
Caused by: cvc-elt.1: Cannot find the declaration of element 'datastore-indexes'.
Please see the logs [/tmp/appcfg32522.log] for further information.
I got around that by removing the target/war/WEB-INF/datastore-indexes.xml file before updating.
This is a google bug: http://code.google.com/p/googleappengine/issues/detail?id=1545
But should disable datasources.xml generation in _Events.groovy until resolved...