Nope. It's more like Googlewater came into town, made a great deal with the mayor to run the water service. Then poisoned the well and left town. Now no one trusts tap water, but Googlewater is more than happy to sell you bottled water from their vending machines.
Even though it's possible for another watercompany to come in and clean up the well, too many people distrust well water, and hell, all the cool kids are now drinking bottled Googlewater.
No, they don't distrust RSS/Atom, they distrust any service that springs up to provide Reader like services. For users who have multiple devices, Reader was an incredibly easy way to sync state. Whether other companies can be profitable providing similar services remains to be seen.
Stripped down to essentials, this would be an online list of URLs, with appropriate auth (and maybe some representation of when something was read?). Such a service couldn't serve adds, but it wouldn't cost as much to run as a G-Reader or NewsBlur. Actually, if the clients were smart enough the described service could just be another RSS feed, which would take pushes from clients rather than polling sites. Either clients or other servers could then integrate this "read" feed with the other feeds.
This separation of concerns makes it clear that more than one trust issue is implicated. I think you're saying that users might distrust a service's permanence (frankly all services should be suspect on this point), but it seems other users might distrust a service's discretion with their reading habits. By separating this aspect of RSS consumption from all others, so that e.g. the really paranoid could just run their own service, everybody would be able to arrange a suitable situation.
Even though it's possible for another watercompany to come in and clean up the well, too many people distrust well water, and hell, all the cool kids are now drinking bottled Googlewater.