java.lang.ClassCastException: com.google.apphosting.utils.jetty.AppEngineWebAppContext $AppEngineServletContext cannot be cast to org.mortbay.jetty.handler.ContextHandler$SContext

Quoting the solution from here,

Did you accidentally include appengine-local-runtime.jar in your
WEB-INF/lib?

So removing it solves the problem.

'GWT module may need to be recompiled' popup in browser

Quoting the solution from here,

This error usually means that you are missing the ?gwt.codesrv= (sp?)
parameter, probably gets lost in your redirect to the page

 Just get the full URL with ? from 'Development mode' tab in Eclipse after you start the server/run as web application and paste it in browser.

Or if you use 'ant devmode' say 'Copy to Clipboard' and paste it in browser.