What's with the "Chats" option in Google's Gmail?

I noticed that just showed up on Gmail too, and I'm both intrigued and a bit alarmed about it too. First it was email, then there was the Google IM and VOIP client Google Talk, which seems pretty cool, but now Google wants to archive all of our chat sessions in Gmail? And then, inevitably, show us contextually related adwords ads when we're reviewing the chat transcripts?

Well, before we get too paranoid, let's have a quick look at what they've unveiled.

First off, your side navigation in Gmail now looks like this:

Click on Chats and you'll find out:

As you can see, I haven't saved any chat transcripts, but it's interesting to see that the IM feature is going to be incorporated into Gmail in the future.

Fortunately, it appears that Google recognizes that there are privacy and confidentiality issues with this feature too. Clicking on "Settings" reveals:

Here's how Google explains this new "off the record" feature: "Chats that have been taken off the record aren't stored in your Gmail chat history, or in the Gmail chat history of your contact. You and the person you're talking to can both see when a chat is taken off the record, and you'll be notified if off the record mode is disabled. Your off the record settings will apply whenever you chat with this person, until one of you makes a change."

Nice design, at least, with future chats defaulting to not being saved once you make that change, but there are still privacy issues and still a question of whether anyone will want to have their chat transcripts in their Gmail account.

Do you?