This is, and has always been, plan B if the contractors didn't deliver. It will be a fairly cushy number unless the terrorists do have a crack and then they are the best people to have around.
Christ, the army has spent the last several years doing mainly policing work in Afghanistan and Iraq (albeit far more dangerous than this). I think they are capable of these duties. Are you seriously suggesting that bolstering the security at the Olympics will weaken the effectiveness of the British Army as a fighting force? Really?