Portland, a few hours away, has similar (though not identical) conditions and no helmet law and seems to be doing well.[3]
[1] http://www.seattletimes.com/seattle-news/transportation/will... [2] http://www.citylab.com/commute/2017/01/seattle-bike-share-pr... [3]http://www.bizjournals.com/portland/news/2017/01/18/biketown...
I also suspect that Seattle is just too far on the other extreme - it's such a bike-friendly city that it's not a big hassle to lock your bike up at home, or at the office. Your biggest potential customers, daily commuters, already commute by bike.
I did find it strange that helmets seemed to be an afterthought, though. Instead of accessing them with the same RFID tag you use to get a bike, there was a 4-digit keypad you used to unlock the box of helmets. The locks were frequently broken and the code was infrequently changed -- not exactly the best solution to deter theft, plus remembering the code is an extra (minor) barrier for occasional users.
In general, it's definitely possible that people were put off by the whole "wearing used helmets" thing (especially tourists), but I think it's more likely that Pronto's failure had more to do with (1) most people willing to bike to work already having their own bike, (2) lots of hills too steep to climb comfortably on such heavy bikes, and (3) very limited service area.
My own personal use was for occasional trips where driving or taking a cab would be too slow due to traffic/parking and I didn't want to worry about finding a safe, public place to lock my own bike, something that basically doesn't exist downtown. I probably used Pronto once a month on average.