Some more info here, from Google:
http://android-developers.blogspot.com/2009/09/note-on-google-apps-for-android.html

"...we've been seeing some really cool and impressive things, such as
the custom Android builds that are popular with many enthusiasts..."

"...we developed Android apps for many of our services like YouTube,
Gmail, Google Voice, and so on. These apps are **Google's way of
benefiting from Android*** in the same way that any other developer
can, but the apps are not part of the Android platform itself. We make
some of these apps available to users of any Android-powered device
via Android Market, and others are ***pre-installed on some phones
through business deals***. Either way, ***these apps aren't open
source***, and that's why they aren't included in the Android source
code repository. Unauthorized distribution of this software harms us
just like it would any other business, even if it's done with the best
of intentions..."

"...We always love seeing novel uses of Android, including custom
Android builds from developers who see a need..."

Cyanogen was giving away non-opensource applications that generate
some revenue for (benifits) Google. That they want to nip this in the
bud (as soon as possible) is understandable.

But Google doesn't want to shut down Cyanogen, and others like them,
all together. Google actually like to see these kinds of activities.

At least, that's what i understand from this blog-post.

On Sep 25, 10:57 am, PhoenixAG <[email protected]> wrote:
> Google,
>
> We love you as a company and love the Android platform. It is only
> made better when it is enhanced by people like Cyanogen who use the
> open nature of the platform to further it and attracts many more
> people to it, as a result.
>
> I am one of the people who was attracted towards Android not for the
> official rom, but because of the open nature of Android and that I
> could use a custom rom on it.
>
> Someone who has put in so much hard work on the platform should not be
> told to cease and desist, but commended and encouraged to continue to
> work better.
>
> Don't become Apple!
>
> The 30,000 users of CyanogenMod and many more Android users will thank
> you for it.
>
> Remember, "Don't be Evil!"
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