Also, the facts that you listed are not the facts that really sell his story. It's the connections, not the business Google was doing. Google's a company, I am at peace with the fact that they're selling their products to the highest bidder (the government has a big wallet, filled with money we give it). It's the connections with schmidt, and the other high-ranking Google employees and various parts of gov't.
Also, remember, the only company that seemed to really fight surveillance (I might be getting this wrong, I only really read pretty standard news sources) was Yahoo.
I don't know why everyone is focusing on the DARPA funding... I don't really like it, and I'm worried about the priorities of the research, but that's not so relevant to google.