This is the first time I am seeing this for a keyword like "new york web design". Google is actually doing an unbelievable job! They are using the Yellow Page approach to the city + service keyword. This has been talked about and expected for a while. But I have never seen it for this keyword combination.

cropped out sponsored listings and news

Update [9:02AM]:
Did some looking around to verify this is a new thing that Google put out this morning. And it is.

Coverage at:
SEO Chat
WebmasterWorld
Search Engine Watch
Cre8asiteforums
I am sure the other forums will cover it as well soon.

Another update: Wired writes Think Globally, Search Locally. We know whenever Wired covers Search, that its big news.