It seems to me that the best way to think of Android is to compare it to the world of Linux distros. (I believe Dan Benjamin of 5by5 pointed this out on one of his podcasts.) Yes, there's Linux, but there's no one Linux. There's Android, but there's no one Android. So while Android is technically an operating system, it's really an open platform on which to build mobile devices on top of. So the Android device I buy…
The alternative isn't for all these devices of different sizes and capabilities not to exist. The alternative is for them all the be running even more disparate, vendor-specific operating systems. We should be thankful for the degree of unification Android's success has brought.
It's a great thing that there's all this choice for the devices. It's a great thing that Android allows this kind of freedom. But it's led to a lot of issues for Google and for developers.
The problem that Google has is that they've effectively lost control of Android. They can't force manufacturers to use the latest version of Android. So they're left with situations like this, where the vast majority of Android devices are running an old version of the OS, and will never be updated to the newest version, because the manufacturers just don't want to[1]. So the result is that they have to support around 4 different codelines at the same time(ICS, HC, Gingerbread, and Froyo).
It's a problem for developers because your display code might not look right on a new device with a weird screen resolution. Or you might need API calls that are only in 4.0, which would lock you out of 90% of the devices right now.
No, the alternative is for Google to exert control over the device manufacturers and state that if they're going to be using the Android OS, they need to support and update their devices to the latest version for at least 2 years after the phones are released.
[1] There is a good economic argument that patching phones that are 18 months old with 24 month contracts about to be up just doesn't make sense, but honestly, it comes down to that the manufacturers just aren't willing to do it.