Greg,
I am also using the same Quantaray PZ-1 DSZ flash with a Canon G2. I know what you mean by over-bright. That is because in TTL metering (or 'Through The Lens') mode, the flash will fire at full power when mounted on a Canon G2.
TTL metering is supposed to allow the flash to automatically and correctly set the flash power by looking 'through the lens' of the camera. Unfortunately, the G2 is not compatible with the TTL on the Quantaray flash unit. The G2 is only compatible with E-TTL. Only a Canon EX series (i.e. 420ex, 550ex) flash has E-TTL functionality. Only with the Canon flash are you able to use Auto, Program, Shutter Priority, or Aperture Priority modes, because it knows how much light is available via E-TTL, so that it can control the flash power accordingly.
The reason why the distance bars appear at the 'one click off 90' position, is because that actually is the 90 position. Just place the G2 + flash on a flat table, and carefully look at flash in the 'one click off 90' position.
You will notice that the flash is aimed straight ahead.
Anyway, I have some suggestions to help with your situation:
1) G2(any mode)+PZ-1(single-flash bounce position TTL mode): Results vary greatly, based on camera mode, and flash bounce angle. That's probably why bouncing straight up is working OK for you.
2) G2(manual mode)+PZ-1(dual-flash,bounce or no
bounce,basically any setting): Here, you control the G2's shutter speed and aperture size. For typical living room shots, I find that 1/400 f/3.2 works well with single-flash bounce, and that 1/400 f/5.6 works well with single-flash no bounce.
3) G2(any mode, but preferably manual mode)+PZ-1(manual mode, single-flash, no bounce): You can set the flash power manually to 1/1, 1/2, 1/4, 1/8, 1/16, 1/32, and 1/64. On the flash, cycle through the modes using the 'mode' button, and once you are on 'M' mode, use the 'M/freq' button to adjust the flash power. Experiment with different values.
4) G2(any mode)+Canon 420ex(E-TTL mode): Sell/return the Quantaray flash and buy the 420ex. It will make taking pictures with an external flash easier. Any of the above choices (1,2,3) will take more
work/time/energy/test-shots/etc. compared to choice (4).
I am tempted to spend the extra money on a 420ex just to make my picture-taking life easier with the G2. It's too bad for the Quantaray PZ-1, because the PZ-1 actually has more features (i.e. better manual control, dual flash bulbs) than the 420ex.
Jeff.