I've recently used nginx to reverse-proxy and load balance to both paste and mongrel. Much easier setup. If you're doing a custom app I tend to think this is better than running a big Apache up front.
Summary if you don't know the story: aaronsw wrote web.py, founded Infogami (yc funded) and merged with Reddit. Then he had a falling out with spez and kn0thing (original founders of Reddit). When Reddit was rewritten, web.py was not used.
I personally like web.py. Any of you using it for your startup/projects? (May be we can swap tips) If you are not using web.py for a particular reason, can you please share that too?
Actually, I went with web.py after all. I blame temporary insanity. That, and web.py was easily understandable without a whole lot of docs to go through, and I wanted to get something up quickly. We may yet rewrite in Pylons, but it's low priority, as web.py is working for us. (We also have practically zero traffic though.)
For templates, we use Mako after having previously used Cheetah, same as the rewritten Reddit. Mako is a very well-done, well-thought-out library. There were some things that Cheetah had a lot of trouble with (like unicode support and fragment libraries) that Mako handles without breaking a sweat.
For JS lib, we eventually settled on jQuery after having tried out Prototype, YUI, and Mootools (never used Mochikit, sorry). This was largely because that seems to be where the momentum is these days. Also, jQuery has a very elegant selector + plugin architecture and a growing collection of plugins. And it's the first JavaScript library I've seen that's intimately aware of namespace issues and tries to balance ease-of-use (no silly YAHOO.widgets.slider.SliderThumb chains here) and not-breaking-anything. This has been a major issue at my day job - we use several Prototype-dependent libraries and they all seem to be incompatible with each other, along with any other JS libraries.
On the downside, jQuery is still fairly immature, so you may have to write some widgets yourself that are provided with other libraries. That's changing quickly though, since many people are writing plugins now.
I've been using web.py for about a month for a small side project. I like it very much, but there are some pretty big things that are missing. Like, having to write a GET handler to serve images, for instance.
If you keep your images (and CSS, and Javascript) in a /static directory, the built-in webserver will serve them automatically. When you deploy to production you can setup aliases in your HTTP conf to handle it.