Given the history of Google acquisitions killing products... is it silly if I'd be a little hesitant to chase their money? Doing business with Google seems iffy.

Paul scared VCs by pointing out that they were competing directly with Google. Looks like Google's competing with him too.

Y-Combinator isn't competing with VCs, if anything, I'm sure it's glad to have new reputable ones emerging. They're much closer to "competing" with angels, yet they're out there trying to drum up more of them. YC invests about $15k. VCs normally won't mess with less than $1mm. Conceptually, YC seems more like a ready-made, actively involved, advisory board than a first investor, to my eyes, anyway.

Google Ventures would never make a YC like investment. With YC the money is secondary to the rest.