Seems like the USA Government wanted Google to show them what their users have been searching for to help with fighting against child pornography. Microsoft, Yahoo and AOL have already complied with their government's request, though they claimed that they did it in a way that protects their users' privacy.
I think I heard in the news that Google is now being charged for not complying.
Breaking the law is not good. And the government's reasons for the request are noble. But somehow I think this is a potential big problem open for abuse. They may say they are using it to fight child pornography now, but who knows what else they going to use the information for. Even if it's all above board now, once precedence is struck, it just takes an evil officer next time to use another beautiful reason to abuse it. *shudders*
Anyway, I think Google going to gain a lot of brownie points from their users for standing up to such requests from the government.