Google continued to make proximity a priority today (July 18, 2006) as it has added map images within search results. When searching on Google for certain keywords or search terms you will find that the first result returned will display local results with map images which are associates to the location of the first result. Basically, Google Local has been merged into the regular web search results. I performed a search for "Clarke's Diner Chicago" and have displayed the search results for both Google and Google local below.
Searcher might also encounter a text box which allows them to search Google Base for listings related to the previous search. In performing a search on "Chicago Apartment" and was present a few extra text boxes as shown below.
This is not the case for every city. For example if you perform a search for "DC Apartments" the text boxes do not appear - which probably means Google Base does not have enough data to make enabling the extra hook worthwhile.
The described Google search result tweaks increase the importance to being listed in Google Local and Google Base since it should ensure top listing in direct searches for a local business. For details on how to get listed in Google Local check out this great post by Brad Gedde's.