Google Desktop and iGoogle are two sides of the same story. Google Desktop started as a search engine for files from your computer, then transformed into a personal agent that shows tiny bits of information from your computer or from the web: news, weather, notes, system stats, email alerts. iGoogle expanded the classic Google homepage with news from your favorite web sites and little applications that gather interesting information from the web. While most iGoogle gadgets can be run inside Google Desktop, it's not possible to add Google Desktop gadgets to your personalized homepage because a web application cannot interact with a software, or at least not without a plug-in.
Google Desktop 5.5 (Windows-only, beta) makes it possible to add gadgets written for the desktop to your iGoogle page. You can choose Desktop gadgets from the directory, install a plug-in that connects your browser with Google Desktop and have gadgets that interact with your computer on your iGoogle page. For example, the music player lets you search for music on your computer and plays it for you. The system stats gadget shows interesting statistics about your computer usage, like battery, RAM or CPU.
The screenshot below shows an iGoogle page with four Desktop gadgets and a Google Desktop sidebar that includes the same gadgets. While it may seem redundant to have the same gadgets in two places, this allows you to disable the sidebar and still see some of the gadgets in your browser. For now, the performance is not very good and your iGoogle page will load more slowly.
Another interesting update in Google Desktop 5.5 is that the desktop search engine is deactivated by default and Google Desktop only indexes filenames. This seems a pretty big departure from the initial purpose of the application: a desktop search engine. You still have the option to enable the "enhanced search" in the setup, but this reminds me of the way Microsoft treated the indexing service in Windows XP.
Google also removed the specialized search engines from the Quick Search Box, improved the Outlook search, changed the setup and added a way to repair a broken installation.