I am a Green Card Holder planning to return to India during May 2010. My current employer in US is willing to have me work for them remotely from India. What are the tax implications here? Will my US employer deduct Federal/ State and Payroll taxes though I am working out of India? Do I also file taxes in India? Need some advise/ strategy. Thanks

Yes, your employer will withhold SS tax and Medicare tax.
The income is India source income so it is taxable in India.
You will also report the income on U.S. tax return and claim credit for taxes paid in India. You can also be eligible for earned income exclusion if you meet the requirements. Your U.S. Tax Return: U.S. Citizen or Resident with Foreign Income