So I haven't used google checkout, but I've used paypal (which I think is closer to 3%, so I definitely wouldn't recommend it for points purposes). Assuming google checkout is roughly similar to paypal, the idea is that google acts as the merchant, and just passes the money on to you, minus their cut. The only thing you need in order to set this up is a web site (i.e., where you sell your "product" or "service").

I haven't looked into this in too much detail, so I don't know about downsides. It could be that it violates the terms of the credit card reward program--check the fine print. It could also be that it complicates your taxes, though in my admittedly limited understanding (please check with an accountant), even if you paid yourself $1,000 and had to count that as income for some business, you should then be able to deduct $1,020.20 as the cost of business, making it essentially tax neutral. (Since you would always lose money, it's more like a hobby than a business.)

Of course, I would love to hear from someone who tries this for real. There are a lot of "non-linear" rewards for credit cards (e.g., something good kicks in when you charge over $35,000 in a year, etc.), so this would be a good technique to use if you end up pretty close to one of these thresholds.