This issue is assigned to an engineer for further evaluation

Just an update, this still is a problem in 1.5 which I received today.

I would like to add a clarification, my 'Googleised' fred@example.com login is also
the same as my Google Apps email address that I primarily log in to the phone with.

I too want to spend a bunch of money on the Market but my personal domain isn't
allowed :(.

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This was working fine for me with 1.5 on my G1, which used the password I log into my
calendar with (different from my hosted account password even though both are the
same). It stopped working with the Droid I just got - it now uses the password on my
hosted domain and just keeps prompting me for an account over and over again. Not
being able to buy apps is ridiculously bad.

As of 2.0, this is now a defect, not an enhancement, as it prevents me from buying
apps entirely with an account that works fine with my Google Wallet.

I, too, cannot purchase apps in the Android market because of this defect.  I have
both a google apps and a gmail account configured on my Droid, and you'd hope the
market would use the gmail account, but it doesn't.

Too bad, because I was about to buy an app.  Hope this gets fixed soon.

Indeed, and the necesscity for a normal Google account is growing.  I can't use 
applications like Google Listen, which naturally requires a Google account login.

The Google Apps and regular Google accounts need to be fricken' interchangable andu
nified already. I am *so* tired of logging into Google Reader, Voice, Wave, GMail,
and more separately, as well as having weird duplicates in contacts. If you aren't
actually going to unify the two separate, somewhat transparently equal but not
totally, authentication systems, at least let us buy on the Market.

Actually, it looks like my problem was because I was trying to use an Amex card to
buy stuff priced in GBP/EUR.  The error message just wasn't very useful.  I added a
mastercard and it's now using my gmail account and I can buy apps.

 Yes, I got this phone (Droid) for its apparently 
capabilities and find I cannot purchase any.  And 
seeing how long this ticket is open for, I'm 
returning the phone, and modifying my review for 
gearlive.com to warn Google apparently users 
away from Android.

Just an FYI:

I was able to get around this issue by signing up for a Google account using my
Google Apps email address (and the same password) so that my Apps email address
becomes my Google username.

Sign up:
https://www.google.com/accounts/NewAccount?continue=http%3A%2F%2Fwww.google.com%2Fig&cd=US&followup=http%3A%2F%2Fwww.google.com%2Fig&hl=en&service=ig&ltmpl=default

As an aside, I then linked this account with my YouTube account to get around
login/sync issues I was having with the YouTube app.

Too bad I've done this already, years ago: its the 
only way to use that email address for Google 
reader.  Unfortunately it doesn't let you add the 
account as a Google account, you type in your 
name and address, and it picks up the fact that it 
is a Google apparently account.  I'm interested in 
how you got your Google Apps account to allow 
you to buy nonfree apparently from the android 
marketplace on the phone.

I don't know why it doesn't work for you; all I know is that I couldn't buy apps in
the Market (it just asked for my password) until I did the above, and then I could.

I'm in the same position: I've ended up with three separate Google accounts as a
result of this!
1) I've got one account at my domain with Google Apps, which works fine.
2) I've got a second account using the Apps email address for 'everything else'
(Reader, Checkout, everything that's not available for Apps users). This feels more
or less transparent because the usernames match.
3) Now, I've had to get a third account for Market (which is stupid, because I
already had a Checkout account setup at point 2). I can't see any reason for this
third account except that Apps users are a corner case that haven't been considered
properly.