Google hasn't said anything about the software APIs for this new operating system (have they?). Presumably, they'll want to leverage all the work on their Android platform and make that the client-side API of choice. The alternative is either high-level JavaScript programming (good for widgets, but you wouldn't write serious apps) or exposing the Linux guts below (presumably, something you want to avoid to stay nimble in your ability to evolve the platform, such as to non-x86 processors).
No, they have specifically said that they won't be using Android for Chrome OS. Chrome OS is very much aimed at running web app.
They said in their blog post that their apps target for Chrome OS will also run on other standards compliant browsers, by which I assume that they mean they'll be HTML5 apps.
They have proved with Chrome that they can make Javascript fast. They do need to do some work around the Google docs still to make things faster though, things like inserting rows in the spreadsheet still take an age (though not due to Javscript speed, more down to a slow server round trip).
The Google docs apps however are already at the point, when running in a recent webkit browser, that most users wouldn't notice they weren't native apps (especially when using the Chrome option to appify a web page).
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