In a sense RSS was never embraced by the mass audience. It took some work setting up a RSS reader and grabbing a proper feed. I was big on RSS but most mainstream users never caught on.
I have not used Reeder nor do I own an iPad but if Reeder requires the user to add feeds on their own, then the user will prefer Google Reader because content is simply fed to them. Consumers love being fed info, all the better if they don't need to lift a figure.
I think Google Reader is also not a very widely used product but definitely more so than RSS because it gives the user content without needing him/her to manually put feeds together.
Google is Google. When have they ever been great at design? =p.