Many years ago, I took a look at the Apple iPod website, and looked at the models. The breakdown was simple. iPod shuffle, iPod Mini, iPod. You could see one page with all prices for all sizes (two sizes for each model), and then you just had to pick a colour and you were good.
I then went to look at Creative's website, and looked through their list of products. They had 16 separate models, many of which were very subtle variations (e.g. the 316 vs. the 316z). There was no breakdown page that would show you the differences or help you decide. Some of them had LCD screens, some of them played WMA, some of them had more space, some came in multiple colours, but you didn't know which had what or what it cost until you clicked on the page. Making a completely informed decision would take hours of clicking links, making notes, hitting the back button, and then clicking the next link.
I marvelled that not only was Creative competing against Apple, they were competing against themselves. They produced 16 different models, which requires 16 different manufacturing processes, 16 different packagings, 16 different manuals (each in a variety of languages), 16 different QA processes.
The same thing is happening here. Manufacturers are largely unwilling to challenge Apple in the high-end of the market (where the Galaxy S, Nexus S, iPhone 4, etc. all live), so they work in the smaller end. The lower prices mean lower margins and lesser quality parts. This also leads to less testing and QA, meaning a lower quality finished product.
As a result of these lower margins, they need to sell more phones, which means producing more models of phones and shortening the lifetimes of the phones in order to encourage people to turn them over faster. It's becoming a race to the bottom.
People compare Android and iOS to Windows and Mac, but it feels like the better comparison is Mac vs. PC hardware, not software. Apple makes very few models of computer (Macbook Air, Macbook Pro, iMac, Mac Pro), which they refresh lately. There are lots of variations, but you have four base models which are simple to understand. In comparison, if you go to Dell's website, there are a dozen models you can buy, each with subtle variations, and even with different prices depending on which business unit you buy from. Other PC manufacturers all do the same thing, and because they don't control the software they ship (other than crapware), they can only really differentiate on price.
It's become a race to the bottom, trying to slash costs and increase volumes at the same time, and PC manufacturers have realized that they're fighting over a huge chunk of the market and leaving Apple to actually make the profits. Android certainly has the potential to surpass Apple in market share, but they're going to be fighting over a much smaller chunk of profits, fragmenting their efforts over multiple products and competing against other manufacturers' multiple products.
It just doesn't make a lot of sense to me.