Barely? Google has a great search engine, but this is probably out of their area of exertise. The main reason they are targeting netbooks is they can't possible support the range of HW that MS supports (or the range that linux supports for that matter). But even with this low hanging fruit it will be hard to pull off.
OTOH, my netbook came with Xp home which I immediately scrapped. MS isn't a perfect fit for the netbook segment either.
I'd say it's right in their area of expertise. They've had years of experience heavily modifying the Linux they use in their hundreds of thousands of servers.
No, the main reason that they are targeting the netbook is that Google wants everything to be web based. In Microsoft's ideal world, we all run high powered machines as our desktops (or laptops), running Microsoft thick client software that we all rush out to upgrade whenever the next edition rolls out. In Google's ideal world, we bring back the thin client. Our computers are just terminals to access the internet. Once on the web, we search google, use google mail, google docs, google everything so that they can sell billions and billions of little text ads. They wanted to address the shortcomings they saw in the browser, so they built Chrome. Now they want to finish the job and put all of our computing on the web.
The thing is, they aren't far off base. After playing with Chrome for a bit, I must say that I liked the speed and GUI better than Firefox. However, Firefox simply has too many add ons and other goodies I use day to day to switch (though it is possible that this has changed). IMHO, the speed was good, but not too much different than bare bones Firefox. Separate processes is a killer feature that Firefox should have added a long time ago (and will have soon; apparently an alpha of that feature was just released). Where Chrome really shines, to me, is the GUI. It is simple, clean, unobtrusive, and extremely smart. I held off trying Chrome for a while after reading their license, but tried it after they fixed it(http://www.pcworld.com/businesscenter/article/150637/google_amends_chrome_license_agreement_after_objections.html). Similarly, I would be really excited to see what kind of a UI they bolt on top of a Linux kernel.
Herein lies the issue for me: Google's products are top notch, but the idea of using them almost scares me from a privacy POV. Take Google Documents. By and large, I prefer to use the office suite (openoffice) on my desktop, but for certain projects and documents the "on-the-go" nature of Google Docs is awesome. Again, the GUI works well and the only real complaint I would have (privacy aside) is some of the odd layout issues I have seen on fairly simple documents when exporting. It seems obvious that Google uses HTML as its intermediary format, and then converts on import and export, so it is easy to see (as a programmer) how this goes awry. The idea of running important documents through Google Docs is kind of scary (most of my stuff in there isn't that important); but the open source alternative, OpenGoo (OpenGoo.org) is noticeably inferior, in terms of UI, import, and export. Sorry for the ramble. :)