It may be a more capable device, but I seriously doubt it's cheaper. Kindle Fire is $199 no strings attached. Android phones costing less than that up-front tend to come with 2-year voice+data contracts at $50+ per month, or at least $1200.
And yes, it does a lot more than the Fire: Gmail, maps, Google app market (including free The Economist app for print subscription subscribers, which I can't get with the Fire) takes pictures, microphone, 3g, etc...
The battery life isn't very good, and obviously the screen is smaller, but generally I find the phone more useful.