It will be interesting to see how this turns out. On one hand we have Mike Arrington who is wrong quite a bit. On the other we have the VP of Android Engineering directly stating that Google isn't making a device and won't compete with their customers. If I were a betting man I'd say Mike's going to eat it.
My personal guess is that Arrington's source heard about a real project, but it's actually just another Android Developer Phone, not a consumer product.
http://news.cnet.com/8301-30684_3-10387677-265.html