The Android clusterfuck is a completely orthogonal issue to whether last year's high end model makes for a good this year's low end model. For $450, it should be perfectly possible to build a faster phone, running current software with a better screen and better battery life than the 3GS.

In fact, I wouldn't be surprised at all if the 3GS processor is costing Apple more at this point than the 4 processor due to a larger die size and outside licensing fees. Paying more for a worse processor is something that you would never do if you just built a low end phone from scratch.

edit: For example, the Samsung Galaxy Nexus (http://www.amazon.com/Samsung-GT-i9250-Smartphone-Touchscree...) is $450, is running Android 4.0, has twice the Mhz, twice the storage, 3x the resolution and 1.6 times the camera megapixels, all for the same price.