This news comes as no surprise to me, as I've been talking about and confirmingby way of my inside source the existence of the Google Phone (or gPhone) for months and months now - yet with the gPhone set to be announced some time tomorrow, for some folks, it isn't considered "reality" yet, and further confirmations are needed.
This one comes from Europe - Spain to be exact. Noticias quotes Isabel Aguilera, head of Google Spain/Portugal as saying, "Some of the time the engineers are dedicated to developing a mobile phone."
The game of cat-and-mouse in chasing this rumor down continues, though, as CNet asks Google in Mountain View for a response and got this: "Mobile is an important area for Google and we remain focused on creating applications and establishing and growing partnerships with industry leaders to develop innovative services for users worldwide. However, we have nothing further to announce."