Microsoft has always been quite good in backporting their developer libraries. So even you did have users on XP you could simply bundle these with your app e.g. .Net, DirectX.
Google may have to look at doing something similar for 2.3 users in particular.
Backported to XP APIs have always been limited and just building software for XP is becoming increasingly difficult (probably as it should be, but the reality is that there are a lot of XP machines still out there), whereas building for both Android 2.3 and 3.0 is laughably simple. You lose out on some APIs, but most of the best stuff is in the support libraries. The "fragmentation" for OS updates (IMO) is really only a serious negative for the end user not getting new stuff, bug fixes, and security updates, not a real negative for developers (yet).
The bigger fragmentation problem for developers is different hardware and different drivers, but OS updates would not generally help with that since the vendors are probably worse with fixing driver bugs than they are with updating their phones (and that "fragmentation" is rather overblown, in any case).
We develop windows applications and have to support XP and up. We certainly notice fragmentation "in the developer sense".
To give some examples, we can't use true filesystem transactions[1] or the ribbon UI[2]. These aren't available as "backported developer libraries". Sometimes we run into bugs[3] which were never fixed in earlier versions.
[1] http://en.wikipedia.org/wiki/Transactional_NTFS
[2] http://msdn.microsoft.com/en-us/library/windows/desktop/dd37...
[3] http://stackoverflow.com/questions/617253/is-anyone-successf...
It provides support for features from Android 3.0 (namely fragments) for all versions down to 1.6. IMO it's essential for Android development.