Arvind, I had JUST published a blog post on this very topic, though not nearly as articulate or in-depth, when I saw this. All very well said indeed, and agree on all fronts.

I think all can agree that Circles is a great technology; the struggle for Google is going to be 1. convincing most of the world that there is an alternative to the all-or-nothing default of Facebook, and 2. that it is good. Great write-up.