It's true that the iPhone was a game changer. It's not surprising to see other companies stepping up to the challenge.
As an Android user (myTouch, 128MB RAM sucks), I often wish for the polish of the iPhone and for access to some much better apps, but in the end I can do things that the iPhone could never do.
I can tether via USB or WiFi, install apps from websites without using the Market and use free turn-by-turn navigation all while while taking a phone call. With Android I feel like I have freedom to do what I want with my pocket-sided computer without being treated like a baby and told what I can and cannot do with my own personal computing device. I have the freedom to choose phones with keyboards or without, with more RAM or less, from any carrier that I want. For me, that freedom is worth a lot.
I think the iPhone 4 is a great device from what I can see and certainly outshines most Android phones, but not by as much as the iPhone outshined BlackBerry at the time. If Google can take time for the next OS to work on the polish, I think they have a chance to really be a solid competitor. Heck, the Droid outsold the iPhone 3G in the first 30 days of sales. That says something.