You can even choose to accept payments via more than one method and let each buyer choose their own preferred checkout method; our standard Cart buttons will show a separate checkout button in the cart for each payment service you've set up (among those that support cart checkouts), or you can offer separate Buy Now buttons for each checkout method you want to offer for each product. This help page covers all the payment options we support:
I think the stats on Google Checkout are more a matter of limited adoption by sellers as compared against the widespread juggernaut that is PayPal, rather than any reticence on the part of buyers about using Google Checkout or other non-PayPal checkout methods. Given a choice between PayPal or GC, buyers who already have a PayPal account may prefer to go with what they know, but I wouldn't anticipate that GC being presented as the only payment option in the absence of any PayPal option would present much of a deterrent, if any whatsoever. Also, buyers new to GC don't even have to "generate" a password; it's just one extra field among their other card-based billing details on the checkout screen, which they can fill with whatever password they'd prefer to use.