The PZ lens is more physically compact, akin to many "pancake" lenses in size. The 14-45 is the original Panasonic kit lens, and many would argue it's optically the best. It's not particularly compact, though.
This is true. IMHO you should just buy the 14-45. It is still quite small, and it has great IQ. The PZ lens has no zoom or focus rings and is a PITA to use IMHO. If you were buying a more compact camera, you might consider the PZ lens, but not with the G5.