New Google phone. A threat to iPhone?

Google has just launched its new phone called 'G1' and it looks to be a threat to Apple's iPhone. Even though it won't be available in Australia for quite some time, this new phone which resembles the iPhone is considerably a lot cheaper. Will this impact Apple's sales? Would you suddenly sell your iPhone 3G on eBay and buy the new G1?

Seriously... why is Google now making phones?