Believe it or not, Google is a free service (for the most part) supported by advertising. I
love the stuff that Google does, the way they handle advertising, and the way that advertising is actually (for the first time ever on the net) actually relevant. They've never done anything to earn my mistrust, far from it. So if by giving them my search histories I can improve both their overall advertising revenue
and my own browsing experience, then I am more than willing to do so.
If things ever go wrong, well, then I'll suffer the consequences. But people demanding Google stop collecting this information is just crazy talk. Yes, Google is fast becoming a necessity because of its sheer usefulness, but it's by no means crossed the line and doesn't look like it will. If you're really that worried - just don't use Gmail, Gcalendar or any of those other things. Your Google searches will still be reasonably anonymous!
Honestly, it's rubbish like this that gives privacy advocates a bad name. Fight a battle worth fighting, for cryin' out loud.