In your model:

response.files.append("http://www.pengoworks.com/workshop/jquery/lib/jquery.autocomplete.js")
response.files.append("http://www.pengoworks.com/workshop/jquery/lib/jquery.autocomplete.css")

def ajax_autocomplete(f,v):
    items_url = URL(r=request,f="get_items")
    wrapper = DIV()
    inp = SQLFORM.widgets.string.widget(f,v)
    scr1 = SCRIPT("jQuery('#%s').autocomplete('%s');" % (inp['_id'],items_url),_type="text/javascript")
    wrapper.components.extend([inp,scr1])
    return wrapper

db.define_table("widgets", Field("state",widget=ajax_autocomplete))

In your controller:

def index():
    form = SQLFORM(db.widgets)
    if form.accepts(request.vars,session):
        response.flash = "New record added"
    all = db().select(db.widgets.ALL)    
    return dict(form=form,all=all)


def get_items():
    q = request.vars.q
    if q:
        states = ['Alabama','Alaska','American Samoa','Arizona','Arkansas','California','Colorado',
              'Connecticut','Delaware','District of Columbia','Florida','Georgia','Guam','Hawaii',
               'Idaho','Illinois','Indiana','Iowa','Kansas','Kentucky','Louisiana','Maine','Maryland',
               'Massachusetts','Michigan','Minnesota','Mississippi','Missouri','Montana','Nebraska',
               'Nevada','New Hampshire','New Jersey','New Mexico','New York','North Carolina','North Dakota',
               'Northern Marianas Islands','Ohio','Oklahoma','Oregon','Pennsylvania','Puerto Rico',
               'Rhode Island','South Carolina','South Dakota','Tennessee','Texas','Utah','Vermont','Virginia',
               'Virgin Islands','Washington','West Virginia','Wisconsin','Wyoming']

        match = '\n'.join([s for s in states if q.lower() in s.lower()])
        return match
    return ''