Google's push into the set-top box market looks to culminate in a "Google TV" device at the Google I/O conference this month. No firm details, but it'll probably be something similar to what everyone thought the Apple TV eventually would become. Another box on top of the TV, connected to the Internet, streaming web video (TV shows from sites like Hulu or almost certainly YouTube with the latter's foray into TV show syndication) to your television as if it had come in over cable or satellite.
It'll have USB ports and perhaps an internal hard drive to put your own content on (read: downloaded TV shows and movies that you stole) and have the capability to play virtually any video or audio file off a USB thumb drive. It'd have to just to match what's already out there.
Financial Times is hyping the device as a "significant breakthrough", but that's unearned hype. There are plenty of set-top boxes out there already that can play video off a flash drive, store video on an internal hard drive, and stream video from the Internet to your TV. What matters is how big the player is because that's going to determine whether or not a market will coalesce around them.
Google's involvement will ensure quality hardware and support, and thousands of people dying to get a piece of it any way they can. If Apple's iPad is just an oversized iPod Touch living off the existing app store ecology, then the Google box might end up being an oversized iPad -- the size of your television. Not only will it play video off a flash drive, internal hard drive, or streaming off the Internet, it'll have access to the Android app store and spur innovation for the largest display device you're ever likely to have, one that typically is non-interactive.
That makes sense when I'm hearing that Google's box will run the Android operating system rather than Chrome OS. Android is proven and already has a growing community of developers.