It's absolutely retarded to spend that kind of money developing on a platform controlled by such a capricious and arbitrary master as Apple. As soon as Android has a userbase, you'll never hear this sort of story again.
"Gartner Q3 2008 data shows iPhone passes Windows Mobile": http://blogs.zdnet.com/cell-phones/?p=354
Whilst I understand that you're referring to North America you should consider that the iPhone is sold in a lot of other countries.
Although, that's not necessarily a bad assumption, given Apple's attitude thus far. I'm going to take a wait-and-see approach on this one.
The REAL death knoll was when I heard that all phones are not required to have all features. So if you develop a game, do you or do not use the camera feature when all the phones may not have a camera? Do you or do you not use the accelerometer?
Google may have made a good product technically, but they made mistakes, and because of those mistakes, Android is dead.
Android will become the OS of choice form phone manufacturers in Guangzhou because it's free. But the big companies will not jump on the bandwagon for quite a while. They already have their existing OSes, and the customers don't care about Android.
Maybe I'm wrong - we'll see in a couple of years. But looking at things from the perspective of now, Google has bungled this big time. OS Platforms are a market with a lot of money behind it, and the mobile OS market has people with money that can rival googles and a lot more experience.
Google can win if the people want Android. And right now, the people don't care.
I can match your anecdote with one of my own - a geeky friend of mine wanted to get a new phone. He liked Android, since it would be like the iPhone but more open. He waited, and then that fugly phone came out. And a few weeks later, Nokia came up with a phone with just as nice an interface, but with well designed hardware. He went with Nokia.
I mean, sure, they've played games ("DOS ain't done 'till Lotus doesn't run"), but flat-out blocking something on Windows?
(If you want to cite Microsoft for something like this, you might be able to find an XBox Arcade related example.)
They said Windows was too restrictive and your letting a for-profit business control the platform is too risky, so users would naturally move to the open platform. But the average, mainstream user, was content with Windows because they were satisfied as long they had their Lotus 1-2-3 or Excel.
EDIT: This is the first social bookmarking site where I feel like I should have the ability to link the same comment as a reply to multiple messages. I don't even remember wishing for this back in my USENET days. How can the userbase of this site be so clever and intelligent, but yet seem so redundant in the posted responses?