It appears that Google is testing a new interface in which the search options on the left panel are hidden until the user clicks for the drop-down.
It's certainly not a major change that would alter Google's functionality greatly. If you really want to break it down, however, I would say that it is a step backwards in user experience, as you would have to perform an extra click to get the options you may want. Big deal? Obviously not, but I don't really see how having to click an extra time helps anything.
That said, it does cater to the clean design style Google likes. Even today, Google's homepage has very little clutter and looks very similar to the way it has always looked. Compare it to Yahoo's homepage.
Either way, just because Google is testing a feature doesn't mean it will actually become a feature, so it's probably not worth worrying about too much yet. In fact, in my mind it's such an insignificant change, it's probably not worth worrying about at all. If anything, it simply prevents users from noticing other features Google offers, which doesn't seem optimal for Google's purposes.
On a related note, Google put out a 30-minute video of some of its user experience staff talking about how they approach UX.