>Gears is served locally

Not in my case.  I'm just using Gears for drag and drop to a webpage,
and following the Gears sample code (well, after some unrelated
corrections and improvements), I have the client fetch from the google
server as indicated.  Saves me having to serve gears_init (google has
more bandwidth than I do) - and saves me having to make sure my copy
is current.  (Yes, I know it's supposed to be stable.)

>A 304 is sent by servers to reduce bandwidth consumption by telling the client 
>to
>serve from its local cache.

Yes, I know.  And once the client has cached it, it will serve from
its local cache - which IS faster.  And it will only check every hour
(according to the intent of these headers), further cutting load time
- which is the other point.  But the headers aren't quite right.

The google server is not setting the cache headers as expected for
gears_init, causing firefox to invalidate it's cached copy on refresh;
it is doing the right thing for jquery.

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