Whether or not your browser client is providing the encryption, however, you've also rendered completely useless any reason for having web mail in the first place, as you've become next-to-useless to them (no content for ads, no content for things like Google Now) and all their infrastructure is useless to you (no content to search over, no content to spam filter, etc). You no longer have a relationship except they're your SMTP gateway and a backup drive. You can get those today all over the place, you don't need google. If you want to stick with Google, go download a desktop mail client and chat client and install the open source PGP and OTR plugins for them. You can do this right now.
[1] http://en.wikipedia.org/wiki/Hushmail#Compromises_to_email_p...
As for the browser side of things, it seems like it would be much much better not to rely on google, but to write a browser extension that identifies the gmail textbox and runs some version of PGP using a private key in your OS/lastpass/whatever keychain. The main thing you'd want to do is somehow isolate the input textbox from the page so that keystrokes only go to the extension, and only the encrypted data goes into the page, preferably when the Send button is pressed.
If Google were to be technically capable of decrypting your email so they can show it to you in a browser, and you're a target for an investigation (a narrow one or an overly broad NSA one), why on earth would the court order/warrant not demand that they decrypt your email to show them, too?
A few other thoughts, though:
- You could still do spam filtering, of course. If it scores highly as spam and the user trusts the spam filtering, it could be deleted or moved into a likely spam folder. (I'm assuming plaintext email is encrypted automatically right away.)
- There are provably secure techniques to perform searches on encrypted data assuming an untrusted server, such as: http://www.cs.berkeley.edu/~dawnsong/papers/se.pdf
- If the encryption is handled on the client side, Google would NOT be technically capable of decrypting your mail. They would not be able to comply with a court order demanding they decrypt your mail. This is what the original version of Hushmail did, before they added the flawed later version that was exploited by FedGov in, if I recally properly, precisely the way you describe.