Google working on a operating system for real. It's not just a rumor. Whether or not this really means anything is unclear and will be until Google clears it up.
So why are they doing this? Mostly because they can and, in my opinion, they'd be negligent if they didn't check out the possibilities. Checking something out, even by developing it to a state of usability, is a long ways from actually letting the beast out into the wild.
Will Google take Microsoft on in their core business, operating systems? I have no idea and I'm betting no decision has been made. They could do it, but be aware that they most likely won't do it, simply because that would be an outright war with MS. I could be wrong. I am not privy to the market data Google has and that is what they will judge whether or not to dive in by.