As a Mac user, I don't have Google Desktop, but this email from UCSD's Vice Chancellor was still interesting:

SUBJECT: Google Desktop Security Exposure

Google Desktop V.3 contains certain features that raise serious security and privacy concerns. Specifically, the "share across computers" feature that introduces the ability to search content from desktop to desktop greatly increases the risk to users' privacy. If Google Desktop V.3 is set to allow "Search Across Computers" files on an indexed computer are copied to Google's servers. We recommend that individuals seriously consider the potential for information stored on their computers to be accessed by others if they enable this feature of Google Desktop V. 3 on their computers.

Employees of the University (whether student, regular staff or faculty) who have confidential data on their work or home computers should not enable this feature. There are both privacy laws and university policies that could be violated through the installation of this feature, specifically, SB 1386, HIPPA, FERPA and GLBA.

While some of the features of Google Desktop V.3 are enticing to faculty, students, and staff, it is important to understand how information is collected, stored, and shared through this application, and the potential privacy risk to individuals.

Please review and share this information widely.

Helpful References:

Google Info

UCSD Policies about Protecting Data

For a good summary of the privacy concerns related to Google Desktop V.3, see:

Electronic Frontier Foundation press release

Technical Paper from University of Michigan's IT Security group

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