The thing about Reader is that its appeal - while limited - was limited to a disproportionately influential segment of the internet. This made its shut down stupid for two reasons.
The first is that RSS's well-established failure to go mainstream meant that it was both a minor and clearly contained "threat" to advertising revenue. The second was that the people who did rely on it heavily are among the best sources of free publicity around. These are the people who take it upon themselves to deal with the fire hose head on, to filter for the best, and to promote their discoveries as widely as they can. And given that Google's entrance into the feed-synching sphere had driven every one else out, their departure left no clear replacement. Essentially, Google waded into the most vocal room in the world, replaced the infrastructure with their own, then shut the whole thing down without any apparent remorse or regret. And that left a lot of very noisy people in the lurch.
Basically, keeping Reader going was the cost of keeping the blogsphere happy. Having hit these people where it hurts, they can now expect to suffer a steady stream of sentiment saying "Google isn't trustworthy". For a business that is unusually dependent on a public perception of trustworthiness, this seems especially undesirable.
If a good substitute for Reader appears in the coming months, the problem may be a passing one. But if it doesn't, the lack will be keenly felt. And as long as bloggers, reporters, and other high-volume traffickers are feeling that pain, Google can expect to lose the benefit of the doubt anytime trust comes up. And even if a good replacement does emerge, Google loses the benefit of having potential critics dependent on (and enamored of) something that they - and they alone - were providing.