@Darren Mansell
I'll start off by saying I'm an iPhone owner, of both the first-gen and then the 3G, but I don't class myself as a fanboy. The platform has its problems - lack of open-ness is a bit of a problem for me, but I've dealt with it so far and with 3.0 offering the features I really miss perhaps the problem is semi-solved. Anyway, I love much of Android - the idea of hacking together a piece of software for it, as I can on a normal machine, and using it as I like, is just fantastic.
My problem with the G1 is that it's just not consumer-friendly. It's not pretty (and it's competing against the very pretty iPhone), the keyboard looks a bit nerdy, and as you pointed out, the UI isn't as polished. Let's not forget that 'smartphones' (broad label I know) simply were not popular with the masses until the iPhone rolled around, and it's that polished UI which got it where it is today. I don't know how the Android community is going to combat that (and, admittedly, I haven't looked), but it needs doing if it's going to become a truly mass-market phone.
In terms of the keyboard, don't forget that most people you see with an iPhone probably can't type very well on a normal keyboard, never mind a virtual one in the palm of their hand. I've been touch-typing for going on ten years now, and within a day of getting my iPhone was up to speed - it's the use of QWERTY, not the fact that it's virtual, which catches most consumers out.