Competition is good. Readability is certainly making him stepup. I still think ignoring android is a mistake (assuming he continues to do so in the future.). I foresee sharing happening within these read later apps and the size of the network matters.
I don't really know. Assuming that this is a free market, I think the fact that nobody stepped up on Android (with a noticeable success) is probably an indicator of the fact this could not be an error. More seriously (hoping we can have a quiet discussion about differences in market between iOS and Android): Instapaper makes (probably serious) money selling the app. Can you make (serious) money in Android without Ads…
My reading of a lot of the commercial Android developer pieces is not that it's impossible to make money on Android, just that where you have limited resources it tends to be the case that they can more profitably be utilised on iOS work. The issue for someone like Marco where it's just him is is less can you make money in Android (with or without ads, that's kind of secondary), more is working on an Android version going to bring him more money than putting that same effort into keeping Instapaper close to the top of the iOS pile.
Obviously if you're a company with several programmers and you're happy with that model then so long as the cost of building an Android version is less than money it brings in, it makes sense because you can just bring in someone else to do it without detracting from your other work. If you're a one man band (or similarly small outfit) with no interest in taking on and managing more people it might not.