The video below provides some insights:
Having Google do 'Web 3D' is intriguing, we have been down the embedded path before with VRML, Metacreations, X3D etc all sadly well before their time. Perhaps Google is well placed to push Web 3D, that said we got excited about the Google multiuser world as well and that was pulled.
See http://code.google.com/apis/o3d/ for full details.