"Unfortunately, most of the academic research suggests that the factors Google has put the most weight on — grades and interviews — are not an especially reliable way of hiring good people. [...] Dr. Carlisle set about analyzing the two million data points the survey collected. Among the first results was confirmation that Google’s obsession with academic performance was not always correlated with success at the company."

I seem to remember there being another better article than this one that went into more detail, but I can't find it right now. If you want the real story you'd probably have to ask a high ranking ex-googler...