There are several issues surrounding this that I don't quite understand:
1. Hawking's view of god and the universe isn't surprising. I mean, is this really shocking that such a view came from him now? So why is this suddenly news?
2. His main argument here is to say that (paraphrasing) "Look, something that we didn't have a possible description before, we have that now!" It used to be that people thought an eclipse is some supernatural occurrence. All Hawking is doing is to show that, look, there's a natural explanation for the eclipse.
3. I don't know why people are so up in arms about this. He is using an unverified theory (M-theory) as the foundation for this explanation for the existence of our universe. It is still unverified, and as far as we can tell, can't be verified yet based on what we can do now and in the near future. Theorists have a habit some time to extrapolate beyond what can be verified (see Kaku, Michio), often going into laa-laa land when they are not careful (again, see Kaku, Michio). It is the public who often makes the mistake of not understanding when something is based on speculation versus facts. If I were "religious", I would not give this type of argument even the time of day. It is not worth the effort considering that physics hasn't accepted these theories as being valid yet.
4. Graham Farmelo, I think, wrote the sanest article so far on this whole affair. I wish we can all do what he wrote at the end of his article. Of course, he also indicated that it is wishful thinking:
Even religious scientists never use the God concept in their scientific work. Perhaps it is time for a moratorium on the use of the concept in popularizations, too? I think it wise for scientists and religious believers to keep out of each others' territory -- no good has come out of their engagement and I suspect it never will.
But this is naive. The science-religion relationship, insofar as there is one, continues to be a crowd-pleaser. It seems to be a fundamental law of PR that the God-science debate is a surefire source of publicity. Always welcome when one has a book to sell.
It will never happen because religion (or more specifically, religious zealots) will continue to intrude upon science's domain, while science will continue to be weary of religion based on the historical persecution of scientists. I'd go even further that I also wish pseudoscience should also leave science alone and not try to justify their crackpottery by invoking various principles of physics that they do not comprehend.
One thing is for sure. It will certainly generate a lot of sales for his book this coming week.