Vic Matheson's research shows that the economic motivation of hosting the Olympics is quite weak: the direct stimulus to income and employment is so small you can't measure it. But the Olympics do present an opportunity to change the world's perception of the host nation, and perhaps the host's own perception of itself. The 2006 World Cup in Germany arguably did both.
My view is that this is a key motivation for China: the Beijing Olympics are part of the process of putting Mao in the rear view mirror. Today's news brings one small piece of supporting evidence:
Olympic symbols have replaced Mao on the 10 Yuan note. Hooray!! (Note: in addition to the stadium and seal pictured above, a statue of a discus thrower is on the back). Hat tip to Alex at Marginal Revolution.