Google Sites added some new features: integration with Picasa Web Albums, feeds, custom templates.
The "insert" dialog from Google Sites is Google's first attempt to aggregate the user generated data from the most important Google services: documents, spreadsheets, forms, presentations, calendars, custom maps, photos, bookmarks. Everything is searchable and you can see a list of most of the documents created using Google services.
We'll probably see this dialog more often when Google adds it to Gmail, Google Calendar or when it morphs into a full-fledged service.
If you don't like that the dialog is part of Google Sites, there's a direct URL for the document picker (internally named "Google OnePick"), but you can't use it to open files.
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