While he didn't give anything confidential away about their plans -- I could tell from his response that it would probably be a good idea to postpone any work on the idea for a few months ... when Google just might launch some whizbang new technology.
Are you worried your startup idea will be Googleized?
The same probably goes for anyone here who has made significant progress -- Google would rather buy a startup than try to compete with them.
You probably have to worry more about them producing a technology that obsoletes your app...
We know they assembled their own hardware from day 1. We know they manage their own backend and platform. They have their own version control. They designed their own buildings at various places. They are even planning to spend 2 years building their own HR tool (but you didn't hear it from me).
Given that they have to compete in a marketplace, they can't be overly irrational. But you can bet they will try to duplicate something they care about before they consider acquiring a startup. More so than Yahoo or Amazon or even Microsoft.
Google is a giant, but its success with search hasn't proven to translate into de facto dominance of other areas of the web. In most cases they've had to end up buying their competition -- YouTube won the video battle, Google Docs & Spreadsheets was acquired from Writely, Google Earth was acquired from Keyhole...
So don't let Google's interest in a problem scare you away from an idea -- use it to motivate you. The web is the one niche in the economy where a 3-person team can topple a multi-billion dollar corporation.
Although your product may be different you're already competing for people's time and attention online. If you're building something to give away for free - then you are opening up the possibility of being Google-ized (as well as the positive of being bought by them)
Abstractly speaking, obviously.