People here have done a pretty good job of summarizing the two cameras. The G1 is a more complete camera in that it has a flash and an EVF, however no video. The Pen doesn't have an EVF or flash, but it's smaller. Personally, I wanted something that did NOT look like a dSLR since I want to take the camera where "professional" cameras aren't allowed. The Pen fills that bill.
One note about the lack of an EVF on the Pen. I purposely shot the Pen outdoors at noon (Texas summer, so the sun was blazing bright) and the LCD works fine. If I was doing fine manual focus, I might have a challenge, but it's easy to frame and review shots, and (of course) the AF works fine in bright light.
Also, I have a very nice dSLR kit, so I wasn't interested in a slightly smaller dSLR like the G1. I wanted a "super point and shoot". The Pen gives me that with dSLR image quality to boot.
People do complain about the AF speed on the Pen, and it probably is slower than the G1, but it's about equal to P&S cameras. I have the Canon G9, but after the first weekend of using the Pen, I gave the G9 to my wife as the Pen trumps it in just about every instance. In the 6 weeks I've owned the Pen, the AF has never caused me to miss a shot.
I think it comes down to form factor. For me, the Pen is what I was looking for. For others, the G1/GH1 is their ticket. The important info to me is that the 4/3 sensor is easily up to the task of very nice image quality. And you're correct, both cameras can be infinitely tweaked to look like the other in terms of saturation, sharpness, "pop", etc.
Here's a low light shot I took last night with the Pen and the 17mm f/2.8 kit pancake lens. ISO 1600. Autofocus worked fine (I use center AF point pretty much exclusively).
