SMS is not required (you can use the google Authenticator App).
The Authenticator app works just like a "plain old token".
Separation of accounts means squat if your passwords are intercepted. 2 factor auth requires physical access and reduces the possible pool of attackers from billions to hundreds.
SMS is just not secure. That's a general fact (it's not encrypted, it travels over many networks in the clear, phones can be cloned, google voice can be intercepted, and then there's alternative methods like this: http://williamedwardscoder.tumblr.com/post/24949768311/i-kno...). But then there's the App.
The App runs on a smartphone. Smartphones are computers. Computers run in software, and are subject to two flaws: network access and software bugs. Consequently, if you download the wrong app from the App Store, you could be installing a rootkit which can control your entire phone - including spying on your Authenticator App. Like i've mentioned elsewhere here, these rootkits have existed for years, and often it doesn't even take installing an App - plenty of exploits have been found in mobile browsers and other apps, not to mention the possibility of exploiting the OTA upgrade features many vendors and carriers build in.
A plain old hardware token is not vulnerable to network or software attacks. You have to physically steal it or read its display in a narrow window of time to circumvent it. The only ones for Google (that I know of) require a complicated tutorial set-up or a device plugged into the computer, and like I mentioned before, it's not worth it for me to do either.
Separation of accounts means squat if your passwords are intercepted
Uh, no. The whole point of separation of accounts is different passwords, so one intercepted doesn't compromise them all. Separation of accounts is incredibly important.
I don't think anyone realizes how much malware is in the Android marketplace. And that's beside the malware that vendors and carriers install on there by default. Do not trust your phone.
Not scared? How about this article[1] from over a year ago, which details over 50 apps in the Marketplace using a rootkit which not only controls anything you do, but can download new code to keep changing at a whim?
[1] http://www.guardian.co.uk/technology/blog/2011/mar/02/androi...
Also, you only need the authenticator revolving token every 30 days.
(And yes, I don't keep my phone next to me when i'm at home. Half the time i'm trying to figure out where the hell I left it)
With adaptive authentication, you basically add a series of heuristics based on the browser's request to calculate a number. A ratio applied to that number determines the likelihood that a user is the same as the one who has logged in before. If the ratio is not close enough, challenge questions are asked of the user to verify they are the real user.
The number is cached both on the server side and in the browser. As long as the number stays the same, and the heuristics of the browser's request stay the same, no additional challenge questions are asked upon logging in again. This also times out after a period of time, so eventually the user must be challenged again.
The difference between that and Google's method is the idea that the SMS and/or App are "something you have" instead of an additional "something you know". But since the challenge questions can be anything (including made-up information that is fake and nobody would ever guess - like a second password), there isn't the same risk as with losing a traditional password, and it isn't something an attacker can find out by social engineering or research.
As we've seen before, you can intercept SMS/voice two-factor auth, and Android malware is rampant. But the only way to get a challenge answer is to use lead pipe cryptography or intercept it at the computer - and once they have your computer it's game over. How secure your authentication is comes down to how you implement it.
I will stick with my trusty dumb physical token and challenge questions as that is the most difficult method to attack.