There's definitely space for this, but what we've discovered is that it has the same problems as Codecademy-esque services. You can do various things to attempt to keep users engaged, but at the end of the day nobody is paying for anything and therefore has very little invested in the process.
That's not to say it can't work -- perhaps it can. But it's been tried and the variables need to be tweaked just right, and it's a hard combination to find.
I agree, I'd love this too. I learned in a similar manner as what you've described.
On the other hand, arguably Wordpress, Scratch[1] and even the Chrome, Apple, etc. app stores have already filled this niche in different domains (PHP, kids, browser plugins, apps).
Heroku is probably the easiest to get started with and is generously free (you can run actual sites from that free instance). At work when we were mentoring a boss's nephew we had him going to Michael Hartl's Rails tutorial and he had a site up on heroku in about an hour and was really have a great time seeing things iterate as he pushed up changes.
You don't get newapp32.codeacademymeetsgeocities.com but you do get something like rushing-waterfall-2311.heroku.com and you can customize that rushing-waterfall-2311 should you care too (still for free).
I learned the same way as you, using free website hosting (with http://en.wikipedia.org/wiki/Wanadoo) in my local library in 2003. While my friends played Runescape I harnessed the power of <marquee>
For anyone new to Python, I highly recommend Udacity. It's still a little unbelievable to me that it's free.
*edit: I should have mentioned that this course uses app engine throughout it's entirety. Not just the first lesson :)
Codecademy meets Geocities
I did my first web programming on Geocities when I was in middle school. I saw an awesome website my friend made with crazy animated gifs and pictures of Shaq. I wanted one for my own.
I went home, and in a week, I banged out my own site with pictures of Stephon Marbury and a pageview counter and more animated gifs. It was glorious.
I've only been able to learn by doing and the best kind of doing is creating something. I'd love to see someone have lessons in an online, interactive programming environment a la Codecademy, but have the result exist and be live on the web, and provide a basic development environment to just build stuff.
In other words, lesson one is "Hello World". When I'm done, my app is available at http://newapp23.codecademymeetsgeocities.com. I'll show my friends. I'll change the text to read "Hello suckas!" I'll move on to the next lesson, or I'll just start playing. I can toggle between viewing my app as a progression of lessons, or as files and folders.
If someone's working on this, do let me know.