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Google is missing an opportunity here. This device, sold at or near cost, could have been an iPod Touch competitor. That would have been a huge boost to the Android Market. It seems the iPod Touch is outselling the iPhone these days by a pretty good clip -- at least according to holiday App Store downloads:

http://www.mobilecrunch.com/2009/12/28/flurry-app-store-sees...

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Google undercutting their hardware partners would be suicide for future phone wins. Moreover, since Google doesn't do their own hardware, this would surely be the last time HTC partnered with them and they'd be up a creek for future hardware designs.

Google only cares about things with a data connection, and I firmly believe that WiFi only devices are a small enough market that they're just a distraction for the big names right now -- except Apple, since the iPod touch kind of bridged an established product with the at-the-time new phone platform.

The Android iPod Touch equivalent is the Archos 5 Internet Tablet. It is much better than the iPod in nearly every way, unless you absolutely must have App Store apps. (It plays 720p MKVs, for example. This is good if you obtain your video files not-from-iTunes.)

Archos released it way before the software was ready, but with the latest firmware updates, it's excellent.

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