I do have Picasa as the default jpg viewer, but that's no hassle as the right click "Open With ..." menu allows me to choose which of the other progs I want to use for jpgs when editing. The right click "Open With ..." menu also lets me use the Picasa viewer for .nef and .raf files (otherwise they open Elements 8/ACR by default).
As above, I always download the memory card with NikonTransfer and view my .nefs with Nikon's ViewNX, I might give CS5 a try instead, but I am reluctant to let Bridge lose cataloguing everything in sight either. I did that with Elements 6 two computers ago and didn't like the 'baggage' it caused, "once bitten, twice shy" and all that jazz.
I never looked at that dialogue you gave a screen shot of - no need; I just installed Picasa and it worked - for viewing .nefs and .rafs I mean. (".raf" being Fuji's RAW file format)
Hope you get sorted soon,