When you download a book from Google, you get a pdf of images of the pages of the book. You'll notice that you also can't copy text from a downloaded Google book. Since it's all just images, the text can't be extracted, so it can't be converted to a format readable by Stanza iPhone.

You can read Google books on the iPhone using Google's book website in Safari. Learn more about it here:

http://books.google.com/