Since Google realized that they could detect and identify the malware infection, the folks at Google decided to start warning people about it by displaying a "prominent notification" on top of search results viewed on affected computers. The simple warning will lead users to a page which explains why the notification is appearing and how to rid a computer of this particular piece of malicious software.

Note: Google only checks for one particular type of malware right now. You should still keep your guard up and practice safe browsing and computing.

Don't let flashy ads on some other sites trick you into believing that your computer is infected — Google's only checking for malware when you're using its site.

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This raises the question that if Google can detect/read Malware files on a system, how secure are all other files stored on the same computer?

Is there a possibility that Google can access private data stored on a HDD or peripheral? (or any other companies with 'access' - eg. Microsoft, anti-virus programmes, etc)

Google are not actually checking for malware, they are checking for its effect, ie redirecting traffic via certain proxy sites. When they detect traffic being routed via these sites they flash up the warning.

So no, Google don't have access to your files, of course, any software actually installed on your machine has the potential to get nasty

I must admit I've always been a bit skeptical about Google's intentions despite being a huge fan of it's search engine, maps and earth, but it is really starting to grow on me. Take Chromebooks for example, storing data and working online is just supremely sensible and having hardware which can be auto-backed up or updated is sure to threaten Microsoft's dominance in terms of the costs of antivirus protection.

I must admit I've always been a bit skeptical about Google's intentions despite being a huge fan of it's search engine, maps and earth, but it is really starting to grow on me. Take Chromebooks for example, storing data and working online is just supremely sensible and having hardware which can be auto-backed up or updated is sure to threaten Microsoft's dominance in terms of the costs of antivirus protection.

Why be skeptical when their intentions are very clear: They want you to use their things so they can sell the information they gather by watching what you are doing. That's the intent behind all the free Google products.