I have to admit that this confirms some of the things I figured were happening inside google.
As far as the dude jumping ship to join Microsoft, frankly at this point I dont think any one can really say they aren't innovating. They are just doing it the new Microsoft way..
Windows Phone 7 is a great piece of engineering, and they are getting it together with their cloud offerings and bing is acceptable as a search engine.
Google has gone down hill, really starting with the creation of android, especially from an engineering perspective. Android is nothing more than a collection of already developed technologies, put together in a method that will work on a phone... using the JVM for all applications was in my opinion a mistake, given the inherent performance penalty. But it was a quick way to get a product to market, and that they did, now a serious player in the field. But it was not in my opinion innovative, but rather it was a best effort to not get left behind in a key area, the ultimately despite my opinion is a huge success.
As to "beginning of a downfall or growing pain" I'd have to say its likely a growing pain.
Google has some very good services to offer via google apps, tight integration between desktop/phone and all that, and with a solid foot hold on what is driving the market today, and in to the future. Even if they are slowing on innovation, and becoming that which they in the beginning hated, the train has far too much momentum at this point to be stopped. Google will be a contender from now until probably the next 30 years, but as far as first place goes, those days may soon be over for them, IMO.
Microsoft I am betting is going to regain traction, but hey, opinions are like bung holes right?