CMJ: Perfect 10 on remand. A challenge to DMCA safe harbor by requiring affirmative steps to protect against infringement? I think big-media (e.g., Viacom v. YouTube) will say "It's about time!"
But, smarter minds offer brighter opinions (the following is a polling of great copyright minds):
(1) The more accepted view is that 512 safe harbor provisions trump the common law doctrines of secondary liability. Thus, assuming that Google has complied with all the Section 512 preconditions (ie notice and takedown, repeat offender policy, etc.) there really ought not to be liability for the Google Image search.
(2) The Court is focusing on Google AdSense. It is not at all clear that Adsense "activity" is protected under the "search engine" prong of 512(d). So you are back to "traditional" contributory/vicarious liability analysis for the AdSense program.
...of course, Google is in the land of the 9th Circuit, home to Silicon Valley.