Apparently, this has been prompted largely by Google Wave, which is heavily dependent on decent browser speed and modern features; the assumption is that while IE users may be unwilling to switch to a whole new browser, they may be quite happy to install a plugin to let them use a site that asks for it, especially a site from a large, trusted operator like Google.
This is very clever on Google's part, and I can see it working out quite well; I really do hope that it catches on.
It strikes me, though, at this point rather weird that Microsoft is still using their own rendering engine. They could shift to Webkit, as used by Safari and Chrome, with rather little work, offering a Trident (their current renderer) compatibility mode for old IE6 content (though, currently, IE8 does not offer IE6 compatibility; it does offer IE7 compatibility). Webkit is under a liberal open-source license and wouldn't force them to open up IE itself, or anything like that. Potential gains are even greater on the mobile, where, even in the latest not-quite-out-yet version (IE Mobile 6.5; used in modified form on Zune HD and some HTC phones) the rendering engine is that from IE6. Just about all non-Microsoft smartphones now use Webkit, which is faster and works with more websites.
I suppose it would be a minor blow to their pride, but realistically, the average user at worst would not care and at best would be happy that websites were faster and had fancy HTML5 features.
However, since they show no signs of doing this and IE9 is still up in the air and does not sound terribly promising, Google's approach seems to make a lot of sense. I wonder will they try to block it somehow? That could have an interesting outcome; if nothing else it would raise serious issues of favouritism towards Adobe.
Microsoft is predictably outraged:
This is not a risk we would recommend our friends and families take.
Now, I'm not an expert on the private lives of corporations, but do they strictly speaking have friends and families? Is IBM the great-aunt who signed over the house to Microsoft, then got packed off to the nursing home? Is Apple the estranged, resented cousin? Are the EU court system's attempts to split off IE from Windows analogous to those of a concerned social worker, removing the children from the unsuitable parent? Or is it just speaking on behalf of every one of its employees? Peculiar, whatever way you look at it.