Yes it is possible, I’ve got some projects on the go at the moment that require some features of a city are modelled in Skecthup and placed in the correct location in Google Earth. This process requires ArcGIS 9.2 (or 9.3) and SketchUp. Download the plugin from here and follow the install instructions:
Although it says it only works on ArcGIS 9.2 I can confirm it functions well in 9.3! If you are having problems finding the toolbar to add int ArcGIS make sure you’ve gone to the sketchup6 directory in the ArcGIS program folder. Also if you are running Vista make sure you run ArcGIS as administrator before you “add from file”.
I’m using SketchUp Pro 7 and so haven’t yet found a way to export back to ArcGIS when I find out I’ll let you know.
EDIT: This method works with a miniumum of ArcMAP, and doesn’t need ArcScene (if you don’t mind not being able to export TINS to SketchUp)