20% time is not a myth. It varies through the company, but in general it really is 20% time, not 120% time. However as one person put it to me, "Nobody will give it to you, but you're free to take it." And certainly not everyone does take it.

That said, most of the 20% projects that I see are internal to Google. Also it is a work project done on work time with work resources, which means that your 20% project is automatically owned by Google. (That said, Google does encourage open source activity. So it isn't hard to work on 20% projects that are open source projects.)