Android

Anyway, it's a mistake pit Google against Apple. The real battle will be between Google and Microsoft for the exact same hardware manufacturers and sales channels. (Meanwhile, you can buy an iPad from an Apple Store or from Walmart without any carrier involvement).

Google hasn't managed the fragmentation problem very well, they haven't done enough to control the quality the Android OS between carriers and manufacturers, and they've utterly mismanaged the Android Market. I'm no fan of Microsoft or WinMo 7, but I expect Microsoft to do a much better job at addressing all of those issues.

Microsoft can also leverage their Zune desktop software.

And Microsoft's development tools are generally very popular with developers. I've done some work with WPF and I found it very impressive and I would expect their Phone SDK to be of similar quality. On the other hand, even though I generally like Java I'm finding the move from iPhone development to Android development to be a depressing step backwards both in terms of the dev tools and especially the SDK.

Then again, it is Microsoft we're talking about. It may take them another 3 or 6 years to get it right.

I believe that AT&T subsidizes the hell out of the iPhone (pays Apple $400 per phone sold), which the do for the privilege of exclusivity, among other reasons. When/if that exclusivity dies, we'll see if carriers will pony up. The alternative is more expensive iPhones or reduced margins (will Apple be willing to accept the latter?).

No more than any other device. By all reports, the iPhone is not significantly more expensive to build than comparable smartphones, and in fact if you look at similar smartphones, both subsidized contract prices and unsubsidized prices are very similar to the iPhone as well.

Android is going to open the market for cheaper, low-end smartphones, that's for certain - but comparably equipped smartphones, whether they be Nokia, Android, or WinMo7, are all in the same general price point.