This is a great quote, and brings up the issue of groupthink. I saw a talk by Ed Catmull of Pixar a couple weeks ago where he talked about how once an idea can be reduced to a slogan, you don't need the idea anymore, just the slogan. His example was architects saying they are designing buildings "from the inside-out," and how it was a good idea for a few years, until he was working with an architect who designed a shitty building and used the phrase "designed from the inside-out" to dismiss criticism.
For Google, if employees get to the point where "do no evil" is a just a slogan that helps them get to sleep at night and they stop constantly questioning their actions, it doesn't mean anything anymore. In fact, it's worse than had it never existed at all, because it's used as a justification for things of questionable evil-ness. "Google stores everything they can about what you do online without asking your permission, but it doesn't matter, because they would never do anything evil with all that information." They can tell themselves that, but it doesn't mean it isn't evil.