Bottom line: Bloglines is good on the input side. It makes discovering and subscribing to an RSS feed very easy, and provides better-than average help in suggesting feeds. It is feature-rich, with things like package tracking and notification, but pays for this with a cluttered look. It is weak on the display of feed entries, and it doesn't give you much room for tweaking its UI. It's on the output side that Bloglines does best, with its integrated blog.
Google Reader
If you like Google's Gmail, you'll probably love Google Reader. It looks very much like its e-mail cousin, mostly because it uses the same cool blue color scheme, same intelligent choices of type sizes, and same uncluttered interface.
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In fact, the interface is so clean it sometimes doesn't adequately indicate the power of the application. Adding a feed is a case in point. Clicking on the "Add feed" button brings up a dialog box that asks for a URL or a search term. Very vanilla. But what lurks behind the box, of course, is Google.
Enter a search term and Google Search gives you back a list of hits that contain RSS feed links. Unfortunately there's no "Preview" button, but a single click subscribes you. If you can't think of a search term there's a "Browse" link that expands into a collection of packaged sets of subscriptions to blogs on various topics. The reader also offers the tools you would expect for easy subscription creation, such as the import and export of OPML files, and a "Subscribe" bookmarklet for your browser toolbar.
Google Reader presents feed entries in two formats: a list of one-line headline entries or an expanded item format. You can't do much with the screen display except switch between the two views, but there's a lot of clever help for working your way through feed entries here nonetheless.
The application assigns read and unread status differently depending on the way an entry is displayed. In the list view, an entry is marked read when you open it, or you can mark all the entries in the feed as read. In the expanded view, entries are marked read only as you scroll down the list, so items off the bottom of the screen that you haven't seen yet remain unread. And in either case, you can clear the "read" mark on any entry to keep it in the feed listing. (Bloglines has a similar "mark new" trick to keep entries in view.)