Google is proposing a UI model for federated sign-in, and arguing that, user confusion notwithstanding, the model fails gracefully.
Fortunately, even though they are confused, nearly all users did enter their E-mail address and clicked the login button. As long as they do that, it does not matter whether they chose Yes or No in the UI, nor does it matter whether they typed a password.
If a user enters an @aol.com email address, they may feel it appropriate to enter their AOL password into the Buy.com UI.
And that will definitely matter.