In spherical geometry shapes are defined by points, lines and angles between those lines. You have only those rudimentary values to work with.
Therefore a circle (in terms of a a shape projected onto a sphere) is something that must be approximated using points. The more points, the more it'll look like a circle.
Having said that, realize that google maps is projecting the earth onto a flat surface (think "unrolling" the earth and stretching+flattening until it looks "square"). And if you have a flat coordinate system you can draw 2D objects on it all you want.
IOW you can draw a scaled vector circle on a google map. The catch is, google maps doesn't give it to you OOTB (they want to stay as close to GIS values as is pragmatically possible). They only give you GPolygon which they want you to use to approximate a circle. However, this guy did it using vml for IE and svg for other browsers (see "SCALED CIRCLES" section).
Now, going back to your question about Google Latitude using a scaled circle image (and this is probably the most useful to you): if you know the radius of your circle will never change (eg it's always 10 miles around some point), then the easiest solution would be to use a GGroundOverlay, which is just an image url + the GLatLngBounds the image represents. The only work you need to do then is cacluate the GLatLngBounds representing your 10 mile radius. Once you have that, the google maps api handles scaling your image as the user zooms in and out.