For the average uninformed user, you have a point. However you are nowhere near correct. There's a reason all professional image management tools on the market, plus Picasa store their edits in a database. Modifying the original is extremely destructive. You can't get your image data back once you save over top your original. Every time you modify and save your data, it will degrade considerably.
Picasa maintains the original which is by definition the highest quality copy of the file. By taking the original and applying edits on the fly every time you open the file, you are assured of having the best quality image possible and the flexibility to change one of your edits. If you open a file that has been saved 5 times as a jpg then you're going to have a blurry, noisy piece of crap.
Every professional grade photo manager saves edits to a database. Your camera's vendor's raw file developer does too, although it the database is embedded in the raw file. Even Photoshop users after their 3rd day using the program don't perform edits directly on on the background layer. Picasa does this too, and it's a huge bonus. You're getting close to professional grade photo management for free.
Maybe Picasa needs to be more up front about how it's managing its edits, and provide more options to back up your catalog. The notion that Picasa should be overwriting your jpg files every time you twiddle with something is dead wrong.