My prediction is that we will be in the same situation with iPhone vs Andriod that we are now with Mac vs Windows in 5-7 years. Andriod will be the cheaper but less polished product sold to the masses, while the iPhone will be a more upscale, more expensive product for the people with discriminating taste. Right now there is a lot of innovation going on in the mobile market, but the reality is that soon some features…
I absolutely think Android will dominate in terms of market-share in the next two years (unless Apple starts loosening control over the iPhone). I think that issues like how applications are distributed and those particulars over multi-tasking (Android still has an entire class of Apps that won't run on iPhone OS 4.0) are going to continue to play a big role in the competitive environment for years to come. I just don't see Apple coming off of it's hard line position on these things.
In the end I think Android wins because it simply opens the door for more innovation from a much larger group of smart people. It enables broader categories of application development. At the same time the shotgun strategy phone development is a proven one. Just look at Series 60 or even windows PC's for a roadmap.