I attended I/O a few years ago (prior to joining Google) and really enjoyed the Moscone Center. Mainly because there was lots of hotels and restaurants in the area. Lodgings around the Google campus are pretty sparse, this feels like a mistake to me. Being able to walk to your hotel after a long day of focusing/listening was definitely nice.
That said, being able to visit the Google Campus if you've never been there is really nice. As well, I'm betting this will greatly reduce the costs of hosting the event and those funds can be used in a different way. And with Google's fleet of buses, it looks like they will pickup and drop people off at the hotels they have rooms blocked off at.
EDIT: as drl42 points out, the mascone center is undergoing renovation and probably wasn't available.