I couldn't tell you about the runtime install, but the scare screens are because Adobe, like Macromedia before them, are EXTREMELY paranoid about security. They don't want someone downloading an AIR app, saying "this looks legit," and then it deletes C:/ or steals their identity or something. The "we have no idea who made this and have no reason to trust them" screen makes sense in that context.
Of course, the exact same warnings apply to every single app anyone has ever downloaded off the internet, so I can't really agree with AIR's stance except in the purest abstract.
That the users even know something is an AIR app is an indication as to how broken that install process is. Compare with VB6 / Delphi / Qt / MFC - users who aren't themselves developers never had a clue.
Just this week, the Paint.NET folks were blogging about not being able to move to the latest version of Windows Installer because XP installs without SP3 won't have the runtime by default. For a downloadable application, extra megabytes are a big blow and extra required steps from the user are an absolute killer. Why would you take the upfront hit to people trying your software?
Java and .NET are still far less prevalent in the apps-for-sale market than they are in the inhouse-corporate market, and I think this is largely the reason why.
Of course, the exact same warnings apply to every single app anyone has ever downloaded off the internet, so I can't really agree with AIR's stance except in the purest abstract.