Wow! What an informative thread, with both Everyman and GoogleGuy contributing, this is how public discussion and debate should take place on the web, way to go Brett!
Everyman- (as you probably know) your experience with the media not getting the story right happens all the time :(. Its not that they are trying to twist the story, but its human nature to only hear what you want to hear/remember what you want to remember.. although sometimes there is intentional twisting... The best example I can give is news headlines-- if you look at a news headline and read the story, rarely does your initial impression of the headline actaully turn out to be the way it really is / as important as the headline made it out to be... Extrapolate this to the entire story representing the facts just like the news headline was supposed to and you can realize that news reports must always be taken with a grain of salt. http://www.counterpunch.org/ is a good website that uncovers innaccuracy in news reports, and also there is a great site that constantly critiques the new york times' stories.
Sorry for the rant :P
Googleguy- You say that the toolbar isn't required.. and your right.. but what about post MSFT DOJ settlement where computers can come off the shelf customized a la Yahoo's toolbars/instant messegers/IE themes... in this time Google partners with Dell(or someone) to put the Google Toolbar on every IE along with other Google branded devices just like Yahoo is working to do...
Then the toolbar, while not required, will already be installed and the users probably will never realize exactly what data is possibly collected. (Although to be fair you could turn off the more extreme things by default like PR shower/etc).
I love Google though, I depend on it to do my job- its my knowledge base for developing intranet applications and internet websites. Google Cache is important in that regard as well!
Keep up the great work, everyone!