I found this question, which appears to describe the problem I am currently having, i.e. blobstore files do not persist after a restart.
Blobstore Images Disappearing on Google App Engine Development Server
However, I believe the question is referring to the python server, and I am running java. I have used the help flag and searched the docs, but dont see mention of the –blobstore_path command line argument. Is there an equivalent for the java server?
As you may or may not be aware, a bug report was filed for this:
Issue 5449: Blobstore objects not accessible after development-server restarts
This was fixed on Feb 9, 2012 so upgrading to the latest version of the App Engine SDK should resolve this for you.