The correct way is for google to be storing encrypted off-the-record chat messages, decrypted by the client in javascript (or however the android client would do it). That way, Google would be able to persist chat history across devices if they share keys, but the stored ciphertext is useless to them.
They're almost certainly not doing that. That would be extremely difficult to implement in a way that works in regular browsers without special plugins and is still secure.
Do we know if they're doing that?