You're joking right? Basically, they're going to populate their encyclopedia by pillaging the information out of wikipedia. Search engines should not be competing with content providers.
Wikipedia is as much of an icon of the internet as Google. I'm predicting that Knol will go the way of Google Answers for the same reason why Digg remains a stalwart of user generated news - it's the community.
However, if you set up a Wikipedia clone -- allowing both reading and editing -- it hurts Wikipedia because it "splits the hive mind". If both sites become equally popular, we can expect the number of edits to be divided between them. Since Wikipedia succeeds because of network effects, a Wikipedia with half as many edits becomes less than half as useful.
That said, Knol does not appear to be a direct clone of Wikipedia; it emphasizes authorship, it allows multiple people to write on the same topic, and it allows opinion, trivia, irrelevant topics, and all the other things that are against Wikipedia guidelines. It will be interesting to see what role it assumes relative to Wikipedia. I wonder, for instance, how they plan to prevent Knol from turning into the next Geocities?