Users typically want to see the most recent activity first. Think tweets, online banking transactions, news updates. It makes it easy to see what's new since you last checked.
With conversations, it's different because there is the context of whatever message came before and after the one you're looking at. It's a similar situation to what you see in comments sections on blogs or Facebook. Moving replies to previous comments to the top of the list doesn't make sense, because the comment is out of context and may make no sense on its own.
A good example of how this works well is with bulletin board software. The posts with the most recent activity are typically at the top of the list. When you go to the detail view, the original post is at the top and newest at the end. It reads like a conversation, just like gmail. Usually it's easy to skip past the messages you've read to the first one you missed.
Outlook and other email applications don't completely ignore context, they just rely on the user scrolling down to see the text of the previous emails, in a slightly less readable format.
Meanwhile, like you mentioned, Gmail takes the conversation approach and actually hides that text that Outlook relies on. It's still there if you click on the "more" button, but why bother when you already have the context of the previous emails directly above?
The important part is having conversation context. After that, it comes to preference. Google is betting people prefer the conversational approach, but lets you switch back to the 'normal' sort order if the user prefers.