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Google says it has redesigned some of the gadgets with the aim of maaking it more visually appealing. The sidebar is also updated to "blend in even more with your desktop."
In addition, when searching it now enables a preview of the results in the browser, and added improved anti phishing.
But the new v5 seems to me to be a method for challenging Microsoft's Vista 'Gadgets'. People I know that have had Vista forced on them seem to like the Gagdets (when they work). Since Microsoft basically stole the sidebar concept from G Desktop, in my opinion, G needs to keep up appearances in order for Vista users to keep using it in light of Vista Gadgets fancy appearance.