Both Wal-Mart & Google have come forward and denied any Cheap Google PC deal.  Usually businesses will only do that to stop hype from getting so high that they lose face when something that would be so great never comes to fruition.  It would be awesome if Google created an OS.  Even better if they sold a cheap web computer with a small 20 GB hard drive, network cable, and lower-end 12″ LCD to view the web with.  Something like that wouldn’t need powerful video capabilities.
The thing Google would make easy is putting something small and affordable in people’s family areas that wouldn’t get in the way like ordinary personal computers do.   With OpenOffice.org, and built-in wireless capabilities, kids could do their homework, and the chef of the family could keep a recipe on the screen as long as needed.
They could then sell attachments, like a webcam with built-in mic, so that when you have multiple stations in the house, they can easily be used as monitors, or video chat stations, for other rooms in the house.
They could tie in to security systems, and even have an extra attachment to make your cable box accessible through any of the stations.
I would like to see someone with the resources put something like this out there for lower prices than one would expect.
It’s too bad Google doesn’t seem to have an interest, because Microsoft doesn’t seem to want to make something like that affordable, according to their licensing terms.  Google could really take the home computing to another level.