I think this will be a short term blow to Android phones. A fair number of android users just want the simple "appliance" experience that the iPhone offers.
But Android features, and especially hardware, are progressing faster than the iPhone. A steady stream of increasingly powerful Android phones will either force Apple into a more rapid development cycle for the iPhone, or they'll fall behind in capability and lose much of the market share they'll gain.
Besides, there's room for two platforms in the mobile world. I'd be far more concerned if I were a Windows Phone 7 fan, as they have nowhere to gain a solid base if iPhone and Android are both on AT&T and Verizon.