This is how the author Aviv Raff describes the new vulnerability in Google Toolbar:

"Google Toolbar allows spoofing the information presented in the dialog which is being displayed when adding a new Google Toolbar button. This can allow an attacker to convince the users that his button comes from a trusted domain. This button can then be used to download malicious files or conduct phishing attacks (e.g. show a login form of a bank)."

Report with several screenshots is available at
http://aviv.raffon.net/2007/12/18/GoogleToolbarDialogSpoofingVulnerability.aspx

There is no fix available, but the good news are here:
Google have acknowledged this and are already working on a fix.
Until a fixed version is provided, he suggests to avoid adding new buttons to the toolbar.

This was covered at eWEEK magazine too:
http://www.eweek.com/article2/0,1895,2236655,00.asp