This usual indicates problems with the classpath. Do you have multiple versions of Jetty in your classpath by any chance?
To identify duplicate classes in eclipse, hit Ctrl+Shift+T to bring the 'Open Type' dialog. Search for the class org.mortbay.thread.Timeout. Ideally it should only come in gwt-dev.jar, but I suspect in your case some other jar file would also have it.
Also open .classpath in your eclipse
GWT container comes before the APP ENGINE
<classpathentry kind="con"
path="com.google.gwt.eclipse.core.GWT_CONTAINER"/>
<classpathentry kind="con"
path="com.google.appengine.eclipse.core.GAE_CONTAINER"/>
I had the same issue and I swapped the order of the classpath
and my errors are
gone now.