Please do see the question this is marked as a duplicate of for a full answer, but just to emphasize the point I wanted to add this example. This is as close to an "unedited RAW file" as I can manage:
I made it with
unprocessed_raw from LibRaw. Each pixel contains the raw data for the photosite with no interpolation, and scaled to fit into an 8-bit JPEG for uploading but not otherwise.
The corresponding from-the-camera RAW preview looks like this:
Which I think we can pretty much agree makes a better preview.
Those are scaled-down, obviously — let me also illustrate with some expanded samples. Here's a crop of the eye from the built-in preview. You'll notice some serious JPEG artifacts — the image out the other side of the RAW converter doesn't have these, of course, and they'd be barely noticeable with a higher-quality in-camera JPEG than is used in the preview. Anyway:
And here is the same eye (sorry, slightly different crop) cropped from the "unprocessed" RAW, although here I've applied a levels adjustment so you can see the pixels more clearly:
Sooooo, I think the obvious conclusion here is that Picasa is really doing the right thing after all.