So, talk about storm in a teapot.
As I hinted at in my update there was a pretty significant amount of miscommunication that went on here. Starting with a poorly named service, a terribly worded change log when that poorly named service changed and then a series of not so helpful posts to the newsgroup. The real story is that XMPP isn't meeting all of google's mobile needs (it wasn't designed to), they had broken compatibility to make use of only a few of XMPP's features, and changed the name to match that. These changes have no relevance to the rest of Gtalk, and the team encourages people to use some of the freely available java implementations on android.
But that's somewhat less exciting than where we're at now. After some frantic IM'ing and emailing we've got some really great communication started between the Google android team and the XMPP community. The community has been explosively discussing ways to improve mobile efficiency and a flurry of tests have popped up (and talks of an XEP).
My only regret is that the Android team didn't feel like it could start that way. I'm not sure if this is a result of the pressure of working on android and having to ship, or if it's a failing on the part of the XMPP community to reach out to developers. But this is exactly the sort of thing that Open Source projects try to prevent, the fact is that the xmpp community cares what the implementers think, and the problems they run into. And we want to make xmpp better for them.
Anyway I want to give a big thanks to Dan Morrill of Google's Android team for working with me in making this happen, and his fantastic post to the XMPP mailing list.