1. Google Desktop must be observing all outgoing network connections.
2. Google Desktop performs packet analysis to identify HTTP proxy connections in addition to looking for direct connections to Google.
3. The search requests did not need to originate from a web browser visiting Google.com.
4. Integration is triggered by observing outgoing packets, and occurs after packets are received, but before they are given to the web browser or application.
This is pretty cool. Google Desktop Search integrates local results into a Google search by intercepting the request out to Google and rewriting it before it gets to the web browser.