Really why would Google want to create a new browser when we have atleast half a dozen competent browsers already. As a matter of fact Google pays to support Firefox and that agreement is valid through 2011. And the Google Chrome browser itself is based on the WebKit rendering engine which is already being used by Apple's Safari browser. So really no advantage there except for the fact that chrome runs each tab you open as a separate process.
Think about this, over the years I have been using less of standalone applications, and more of applications on the browser. I use my browser for email, editing, spreadsheet and presentation. The only other applications I use is when I want to watch a movie or listen to music on my computer. Even that can be moved to the browser.
So there are many days that the only application I need to run on my computer is a browser. And Google has understood this for years now. That all your applications will eventually move to the browser. So Google docs and all other google apps are a step towards that goal.
Imagine the scenario. All the applications you need, now run on your browser. Does it matter what operating system you have in that case? No. Does it matter if you have an operating system at all? No. Your browser itself could be the OS too! So boot up your browser and shut down your browser! Far fetched or not, I bet this is already sending shivers down Microsoft's Spine.