From Google's documentation:
Google Checkout is available to shoppers with billing addresses in a number of locations. Buyers can also ship purchases internationally if the seller offers this option. To see if you can sign up or ship purchases to your location, check the Location: drop-down menu on the sign-up page. Remember, while you may be able to purchase products from Google, like Google Earth, you won't be able to purchase from other sellers offering Google Checkout unless your country is listed.
Don't see your location on the list? We're working to make Google Checkout available as widely as possible, and we look forward to expanding our service to more locations soon.
Chances are that either you or your buyer are not in one of the countries listed. There shouldn't be any additional settings to take foreign payments.