In this podcast [1], Steve explains that this was a story of an Evil Manager who "slipped into" Google, and took a long time to be discovered. He suggests that he was fired after the story (although he doesn't say it outright).

In this interview, Steve also points out a point along the lines of the ancestor poster's - that Google encourages employees who are ambitious enough to start "startups within Google".

1. http://blog.stackoverflow.com/2008/10/podcast-25/