it is my understanding that contention issues aside, the user's speed will only be as quick as the speed of the websites/games/service that is connected, or am I erring ?
No, you are not erring.
(1) Selling a headline 1g per subscriber, you can be assured of much contention, packet shaping and rate limiting .... as even an entity the size of Google won't be guaranteeing 1:1 1g per subscriber.
(2) Yes, you are limited by the speed (real or policy enforced) of the destination.
(3) Google like most others will no doubt be using a hot-potato routing policy, "guaranteeing" 1g on their network .... but getting it off their network as soon as technically feasible and thereby washing their hands of any speed "guarantees".
You have to remember that Google are an content and content-distribution network ... from day one, their network has been designed around that. Going from that to an eyeball network is a bit of a challenge to say the least, hence you'll probably find pilot projects like this sprouting up here and there.... but you're doubtless looking at a good while before a global rollout (both due to Google's network and the local in-county restrictions etc. on operating ISPs and delivering final mile solutions)..... if it ever happens.
As for the "Why" ... Milo's got that one, they want to monetize and gain access to more data to build their products. The ISP bit will be to enable them to provide customers with assured levels of access (QoS in tech terms) to Google hosted content....they probably care sod-all about other content on the internet !