Google has added video chatting capabilities on a new version of Android phones- Android OS 2.3.4.
A video or voice chat button will appear in the Google Talk friends list next to your contacts. While video chatting, any text chats from that person will also appear overlaid on the video. When switching to a different application while video chatting, video will be paused while audio will continue to run in the background.
Check out the demonstration video from Google below:
At the moment only Google Nexus S will be able to update to the new Android 2.3.4 followed by other 2.3 Android phones in the future.