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Google group thread is ugly, code is not highlighted. This move will make life easier.
Sounds like they are going directly into the StackOverflow database.

If not, Google should reconsider. A lot of people got screwed when StackExchange dropped support for custom "stack exchanges" a few years ago.

There are still custom, thematic stack exchanges.
Based on their own judgement on what is popular or not, in the "community".
I'm pretty sure they'll accept payment to host an unpopular private site.
They used to, but now they don't. You can see their official answer here : http://meta.stackoverflow.com/questions/83591/how-to-run-a-p...
Why is that? Why wouldn't they take the money if someone wants to license their software and host a private Q&A site? The FAQ doesn't give a reason.
Because they believe a good community is part of the success of a stackexchange site. By allowing people to artificial keep up a topic site, the chance is big you'll create 'ghost towns' where there's nobody to answer questions, which would be detrimental to the users experience.

That's why they enforce people to incubate a topic site and only allow it to go through if it's substantial enough.

They also mention their goal, when SE was started, was to make the web a better place (and to get rid of Experts Exchange). A "ghost town" has little chance of making the web a better place. It kind of makes sense. However, if you run a private support site that requires login and is, therefore, not googlable, it wouldn't pollute the web and they could consider hosting it, provided their platform supports the feature.

If you want to have your own SE-like site, you may want to look into AskBot - it's very good.

OK, so are they worried ghost towns will reduce the value of the stack exchange brand? I mean, even if they are being altruistic, I still don't understand the societal harm caused by ghost towns.
How many times have you googled some question just to find out the solution was correct 5 years ago but doesn't work with any current release of the software your are using?

Recently, the Ubuntu community took down a lot of wiki pages that had howtos for ancient versions of the OS.

I am pretty sure this is a correct and relevant factual statement. Yet someone with more privileges than me voted it down. Am not impressed.
Your statement is mostly incorrect, the metric they use to evaluate the performance of a site is clearly indicated on Area51 and you can see the progress (or decline) on the proposal page of each website.
and "a lot of people got screwed" when support for something changed would bother Google why?
The SO database is very liberally licensed and available for download, by the way, so it's surely one of the most open ways to store your data.
They would probably never say this publicly but I will speculate...

The move is meant to move those(the majority) who would rather send an email off rather than do their own research, or read the docs, to a more appropriate forum.

And google employees can beef up their SO reps for answering the same questions over and over again. There's no incentive in answering most of those kinds of questions on a mailing list. And email is easy to ignore.

Google beat by Jeff Atwood and Joel Spolsky of Stack overflow in community support? I believe it, Stack overflow is the news.ycombinator of community programming help.

I've been listening to Joel Spolsky and Jeff Atwood's podcasts and frankly, they are the best podcast I've ever listened to. Insightful, funny, creative, enlightening. I've burned the mp3's to CD's for easy listening in the car. All programmers should listen to all of these.

http://blog.stackoverflow.com/category/podcasts/

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Does this move by any chance mean that Google is slowly giving up on Google Groups?
No, it's users giving up using forums for Q&A.
even before they made the switch official the AppEngine devs were active SO users and the site had become an unofficial knowledge base for the product.