I read that it's recommended to derive custom exceptions from System.ApplicationException.
On pg.39 it says, "We will create our own custom derivative of System.ApplicationException", however the code Inherits System.Exception, not System.ApplicationException.
Is the code wrong?

I always heard to create a custom ApplicationException class in your application, which is based on the System.Exception class...

Here's what I read in the VS.NET help:

.NET Developers Guide
Best Practices for Handling Exceptions

Do not derive user-defined exceptions from the Exception base class. For most applications, derive custom exceptions from the ApplicationException class.

What would be the implications of changing Public Class AppException to inherit System.ApplicationException instead of System.Exception?

According to what I've read System.Exception and System.ApplicationException exist so that catch filters can easily differentiate between exceptions thrown by the system and exceptions thrown by the application. A policy that Microsoft itself violates.

Other than that I don't think it makes any difference and I don't think it would matter if you changed AppException to derive from System.ApplicationException.

For a really good discussion of exceptions and exception handling, see Jeffrey Richter's book "Applied Microsoft .NET Framework Programming"

Richard Waddell