Take this news with a grain of salt.
As awesome as Google's "plan" sounds, I cannot help buy have my doubts whether any of this is actually in motion at all. This article was dugg up to the top rather recently, yet it has a 2005 post date. 2 years is an enormous expanse of time in technology-terms, and Google is definitely more powerful today than those 730 days ago. Yet there is not even an article on wikipedia about any sort of Google datacenter.
What happened?
I find a couple things wrong with this proposal:
1. Lawsuits
Expect there to be lawsuits abound if Google put this plan into motion. Claims of monopolizing will definitely abound. The author says ISPs would be untouched but I think Google would definitely crush them in the end with this plan and catch a ton of flak for it. Caching all that video/images/etc I think would begin to have some legal consequences, especially in instances where the content downloaded is copy-protected. If Google put itself in between a Steam user and Valve, they could cache any games, intentionally or not, downloaded to the user.
2. Caching
Caching is definitely not a perfect solution. Just because Google would have basically limitless storage space in each of these does not mean that getting web pages would be faster. Maybe marginally for often-used sites, but the trend has been for web pages to pump out content faster. Caching will work best only for image-intensive sites.
But hey, if it did work, I'd be all for a faster, more reliable Googlenet