In July 2005, Google acquired Android Inc. for at least $50 million, whose key employees, including Rubin, Miner and White, stayed at the company after the acquisition.

In particular, Google basically acquired some people. Anyone who thinks they had a real OS at that point, and anything that approached even the first version of android, is smoking something.

Source: I did diligence on the acquisition, and I watched them develop android at Google.