From a business perspective, this might make sense. Google Reader is probably not making Google much if any money. However Google must loose some good will when they shut the thing down. I bet there are many people who use it for their RSS viewing needs.
The only bright part of this shutdown is that people are rising up to create a Google Reader replacement. Just today I saw a post stating that Digg is on the mission of building a replacement. This might help Digg in other ways if they build some extra features in the product that highlight Digg.
