It would be a foolish political move to alienate the open source fanatics... and Google is not foolish. The media often times lacks a real clue -- they take the easy assumption that they're hiring browser guys to create a browser. No thought or knowledge goes into that assumption.
Since Google is not going to make any money on a free browser, why reinvent the wheel? This makes it a foolish business assumption on top of a foolish political move.
But if Google can PARTNER with a pool of fanatical and talented developers, then they have free labor and much more importantly MOMENTUM. Plus these FireFox guys admit to media they will be working for FireFox at the same time. All signs point to partnership.
While Microsoft has market dominance with IE, there is no way that Google would ever approach them with regards to partnership, as they are a clear competitor in search, albeit a VERY WEAK competitor in terms of the technology. Ironically, Microsoft just released its weak and very late search technology today. However inferior, Microsoft has substantial cash flow and means, and have proven they enjoy taking over ideas which are in their sphere of influence, and having browser market dominance gives them leverage Google wouldn't want. FireFox is the perfect choice because it has momentum and is frankly a superior browser technology. (If you haven't tried FireFox, download and try printing a webpage from both, as one of many examples... not to mention the tabbed format FireFox has, the many extensions, etc)
THEORY: It is my speculation and theory that Google is working with the FireFox experts to create a "Killer Extension". (replacing the Killer App) Now, what extension could Google charge a small fee for or a small % fee for that would make it ubiquitous and worth their while to pursue? A company with this wide of a scope doesn't look for niche applications, they look to change the world. What does Google do best -- search for text, products, and services, right? Perhaps they could team with FireFox and create a killer extension that had functionality similar to EBAY but was on everyone's browser? I'll coin the term "GBUY" to go along with their recent GMAIL naming convention. Since Google already dominates search, they could then continue leverage their search position to dominate the commerce through which many internet items were purchased. GBUY could provide a service to not only consumers, but also vendors making it easier to setup and transact all type of business over the web. They already have AdWords which accepts payments from Vendors on a per-click basis, and they already have AdSense which delivers payments to millions of website owners. The payment infrastructure is essentially there, and as everyone knows, the search dominance and capabilities continue to expand (see Google TV, Google Images, Froogle, et al).
Instictively, this might be the clue that shows Google going after such a market and that something is there. You heard it here first.