I find it funny, that image, as if some random bloggers "indictment" should motivate Google to action. They're handling it just as they handle Youtube, and I think it's brilliant. If you see your material in the Market, file a DMCA. Problem solved.
Yes, customers ignore permission warnings, but again, that's an unrelated issue, and surely you're not suggesting that Apple's lack of a permission list is better simply because users sometimes ignore it when offered.
In terms of security, both from a disclosure, per-permission level granting and sandboxing perspecitve, Android has a superior model.
However I actually think there is a perfect medium somewhere in the middle: Granular permissions that allow for curation by an optional third party. That would be an ideal situation for the market, where Grandma or Joe User can select from a number of curation sources (or punching it in directly) where reviewers rate by quality, assess if the permissions are appropriate, etc.