Just want to give my 2 cents on the topic. I have never used or have had a need for anti-virus software on any of my droids. Android is linux based and I read permissions before I download an app. That being said though, malware would be more of an issue than a virus. Malware wouldn't damage your system per se but would try to do things like steal passwords, phone numbers etc (CarrierIQ, lol).
I had Lookout on my OG Droid. Weekly I got emails and it would say it found something, but it never said what it found. That would be nice to know if I wanted to prevent it from happening again.
i don't know much on this subject but you would think that if AV software was necessary on your smart phone wouldn't they come with one from the factory kinda like your PC usually does?
I use Lookout. Maybe it is un-necessary, but it is better safe than sorry. A small performance penalty for a peace of mind. Especially if you download APK's directly and install them or get apps for outside Android Market or Amazon.
On my OG Droid, it was up in the notification bar. The odd thing with Lookout (aside from sending me emails that it had found something and taken care of it, but wouldn't tell me what it was) was that when I had an update on an app, it would scan the app AFTER I got the announcement that the app was successfully installed.
I was always under the assumption that Lookout never did anything for me. It never found anything, etc. I did use it once to find my lost phone, but I've since replaced that specific function with SeekDroid. But I have decided to look back into the subject after this article: [Best Of 2011] 35 Incredibly Useful Apps From 2011 in which Avast got high marks.