I think it's about getting google to agre to a liecnse/repackage agreement, just like HULU has with some other outlets that use HULU content.
HULU is desperate to find a new revenue source to support new&improved content to try and be competitive with other (googTV, netflix, etc.) online sources.
The orginal "1- 15 second commerial" (later 2 or more) isn't paying the bills anymore.
I beta tested HULU in early 2007 (before it had the hulu name) and it ws originally concived as a pay-per-view move channel, later when the download code system proved unworkable first run movies were dropped and the TV/RERUN/old movie with few ads model emerged, which worked for a few years until everyone jumped on the download bandwagon. as far as ad insertion they still do a better job (ad placed were the tv show was designed to have an ad) than some of the network video sites (Comedy central is particularly annoying placing their ads, sometimes in mid sentence or clipping out part of the show for space.