It's unlikely in the extreme that Google would follow Apple's lead and keep Android to itself. More likely, Google would use its Motorola platform to develop Android to its maximum extent and then demonstrate to other manufacturers what's possible. So by owning Motorola Mobility, Google could give iOS and the iPhone some serious competition in terms of the complete integration of hardware and software.
What's even better from Google's viewpoint is that Motorola makes some very good hardware. The company won't have to start from the ground up in the smartphone business. This could effectively give Google a leg up on Apple for two reasons. First, it would be a second source of extremely well-integrated devices. Second, it would give Android makers and carriers of Android devices a way to expand into markets that Apple isn't entering.
Right now, the Apple iPhone is a device for the elite. Owning an iPhone is sort of the smartphone equivalent of driving a BMW. It shows the world that you can afford the device itself, and that you can afford the significant cost of the data plan that goes with it. In the U.S., and in some parts of Western Europe, the purchase price is mitigated by rebates that make the out of pocket cost manageable; in the rest of the world, buying an iPhone means you just spent nearly $1,000 on your phone. The data plans vary according to where you are and which carrier you use, but they're not cheap anywhere.
In contrast, Android phones are being offered at prices that are significantly lower in many markets, and they don't always require an expensive data plan. Considering that the mobile phone market is truly global, if these devices are to grow, they have to do so everywhere, not just in places where the users are relatively affluent.
In effect, Google's purchase of Motorola opens up a global market for Android devices that will reach an even broader audience than it has already. If Google wants to build Android devices that it can give away for free or that cost only a few dollars, it can do this and in the process provide an even more attractive alternative to Nokia and Microsoft. If Google wants to build an Android tablet that dramatically "underprices" the iPad, it can do that, too.
While this is all speculation at this point, the fact is that Motorola Mobility has not only the patents, but also the manufacturing knowledge to change the face of smartphones. And that's a face that needs changing.