I agree with everything Michael Klurfeld says in this post:

http://techgeist.net/2009/09/google-hurt-lot/

UPDATE: I also agree with CyanogenMod’s excellent, professional response to Google on their blog:

http://www.cyanogenmod.com/home/the-current-state

The comments in various blogs seem to all agree. Google messed up big-time with this, and they are in danger of losing developers if they don’t make things right. In a fair world, they would open the offending applications completely (GPL2) and make an offer to purchase CyanogenMod for a bazillion bucks. (Actually, that may be their cheapest PR-friendly option at this point.)