Amusingly, the hysteria unleashed by the media (including a quite silly woman on the Today programme this morning) missed Project Gutenberg, which has already been doing this for quite a while. Admittedly, they hadn't gone the extra mile to put it into PDF format, but that shouldn't really require many PhD people to sort out.
It's quite good timing for Sony, whose eagerly awaited eInk system, the Sony Reader is scheduled for release soon. Google have previously stated that they are not aiming to become direct retailers, and are therefore only providing links to retailers offering the books (although I'm surprised it doesn't already compare prices). I'm not totally convinced they will feel the same way about book downloads rather than book sales.
This would have the potential to actually make Google some money for one of their many half-realised services. We'll see what happens, but if there's one industry due for a shake-up it's the publishing industry.