good points by all, and I think the difference between the way people felt about Michael and Vito was very different because they lived in different times and were very diffferent men.

Vito lived in an earlier era. Being a "Godfather" carried religious and social significance that was on the decline in Michael's time. The idea of respect and honor probably was as important as fear.
One reason I think Vito so easily reolaced Fannucci was that Fanucci ruled by fear only, and Vito did it with compassion, honor and the limited and justifiable use of force.

Michael lived in a different era. America had become more secular, and as a second generation Italian he did not hold to the traditions as much as Vito. Sure, he gave lip service to them, but he really didnt believe in them. His marriage to Kay was one of convenience, not love, and his becoming Godfather to Carlo's baby was an act that was a part of a bigger plan which included killling Carlo the same day. Michael ruled by fear, and he was ruled by his own paranoia.

An example of the contrast can be seen in the way Vito and Michael treated Johnny Fontaine. Vito saw Johnny as an errant Godson. When his services were needed to get him out of the bandleader contract or into the movie, he gladly provided them, and while Johnny knew he owed the Corleones, Vito never really pressed him. When Johnny showed up at the wedding Vito told him to spent time with his family (and dump the woman he took from Woltz) and to get some rest and to eat becaue he looked terrible. When Michaell met up with Johnny in Vegas, he got rid of the women in the room not because he cared that Johnny was not a family man, but because he had business to do, namely to get Johnny to repay the debt to the Corleones bu agreeing to play Vegas so many times a year and to ersuade his Hollywood friends to do likewise. Of course at that point vito was still alive so the "favor" Johnny did was offset by lucrative contracts to perform, and thus only enhanced him in Showbiz. In III Johnny is no longer of any use to Michael, and when he performs at the party Michael mocks him by telling him he is leaving the live performance to go listen to Tony Bennett records. Vito would have never acted like that.