Yes, the G1 screen orientation changes from portrait to landscape when you slide out the keyboard. However, the screen won't rotate automatically when turned to the side, even though an accelerometer is on board that makes this feature possible. Take a look at the YouTube video posted by nuuneoi to see that a hack is already in the works (and apparently working) to do just that - utilize the accelerometer to auto-rotate when the G1 is oriented in landscape.
This feature is claimed to be a part of the SDK and developers merely need to unlock this feature for their app. If that is the case, it begs the question why Google didn't give this unto us in the first place? Why must auto-rotation be a hack or third-party app rather than a feature applied universally to the G1?
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