According to the Register: "Google is preparing its own distribution of Linux for the desktop, in a possible bid to take on Microsoft in its core business - desktop software. ... A version of the increasingly popular Ubuntu desktop Linux distribution, based on Debian and the Gnome desktop, it is known internally as 'Goobuntu'."
There has been lots of rumors, speculation, and denial about this subject, but this is the first real article that I have seen that talks about the subject in any real detail.
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