I would like to get a RSS reader application for my iPad. It will need to be able to sync with Google Reader because I use Google Reader on my phone and at work. However, I am concerned about providing my Google password to a 3rd party application. If I enter my Google password in a 3rd party app, I am assuming that the app could easily send my password back to a home server, store it, and then do anything they want with it. Is that not the case? Do Apple or Google provide some kind of password hiding scheme so that 3rd party apps can use passwords without actually being able to see them?
If you're worried about it, my suggestion would be to use Google's 2-step verification on your account. Basically, when you're signing in to your Google account from an untrusted computer (one you haven't successfully signed in with before) then in addition to your password you will also need to provide a 6-digit code that can be generated by an iPhone app or texted to your phone. That way, even if your password is compromised, no one can log into your account without your phone.
For apps like RSS readers, Google also lets you set up randomly-generated one time use passwords to sign into those apps that you can revoke at any time.
How are the app ratings on the App Store? Anyone complaining of their password being stolen? Is the app popular? Using a third party app that ties into Google's API's is like any other app, and requires a degree of trust. If you have reason to not trust the app, don't use it...but realize, too, that your normal use of Google Reader isn't significantly more secure from attacks.
If you're concerned about encryption, those authentication tokens and passwords aren't sent in the open for any joe to read; It's as secure as you can hope for.