Yes S3 and appengine are doing this, but still at the nondomain "computer programmer" type level. A better example would salesforce app exchange, domain specific applications being created on top of others. But this level of activity is still small. There are a much larger number of excel spreadsheet templates/macros etc.
What I was thinking of as that a single developer/domain expert (e.g accountant) could quickly create a small program in an hour or a day or so and immediately have it hosted somewhere for someone to pay for it and use it. This program might be using someone else's small program that does something specific. An "end of the line" entrepreneur/marketer would be creating/paying for the final website interface that the end user uses and pays for (or it could be advertising supported). As it is used, all the various creators would be compensated appropriately.
The market ecosystem of suppliers would sort out the complexity (as is done in the manfucturing/distribution/retail industry).
The above would start working when there is critical mass of developers/designers that are willing to create and consume each others products.
