Domain registration is no longer a profitable business. Now it's all about value added service providers - a/k/a registrars - that use domains as a loss leader incentive to do more profitable business.
Strategically it is a bloody good move for a search engine to become a registrar, especially when local search is now an important aspect of the business. It would supply Google with a ready feed of location data. Not sure about the data privacy issues though.
They are simply following Yahoo's lead on this (though a bit late)...allows for controlling much more data about users who register and host with them...(aka - More data mining into the gigantic pot for leveraging against market business decisions)..
Doesn't really cost Google much...they have trememdous resources and they love to automate..
domain registration desktop search web accelerator blogging Google Toolbar Google Analytics Personalized Search Google Mail
Add them all together and you can begin to get an idea of the unprecedented access to user data that Google has and is continuing to develop. Each new "service" that Google offers conveniently gives them more access to such data.