The way I see it, the google ereader will be big fail like the kindle!
It tries to copy the kindle, by adding a keyboard (
see link here)
A lot of the books of Google are in public domain, you just have to find them!
It's probably making some money off of the books, but Google has never been a profit hungry company. It just used to make good stuff (like their search browser and google.maps).
I don't expect it to bounce up against Amazon, and B&N any time soon; it probably will make as much profit as Sony (just enough to bring some revenue, albeit a low revenue).