Too much is being made of this. I'm pretty sure that Google isn't intending Chrome OS to compete directly with Windows. For one thing, that's a battle they're unlikely to win. For another, what would be in it for Google? Chrome OS is going to be free, open-source software - it won't make Google money in itself. The point of it is to lock users into Google's web services, since that's where they make money.
It'll be great for browsing with Google Chrome and emailing with GMail and working with Google Docs. It will do this effectively and securely. But take away the internet connection and it'll be pretty much useless. What's in it for Google to develop a robust OS for gaming? And you can expect to be discouraged from using your favourite desktop office suite or mail client, because then you wouldn't be in Google's revenue stream.
This isn't about beating MS at its own game. It's about moving the battlefield from the desktop onto the internet, where Google has the upper hand. It's about as different from Windows as an OS can get - Google know they can't beat MS on the desktop, so they're drawing the lines somewhere else. And I have the feeling that at this stage, it's pretty speculative.