What most people seem to forget here is that iPhone is one, while the Android will be many. G1 is just the first of many different phones that will be inhabited by Google's mobile platform, Android. It may not have multitouch functionality, as noted in Gizmodo's most recent list of grievances, but that's because the device itself does not support it. But some other device will.
In other words, you cannot directly compare the iPhone and G1, and you cannot directly compare iPhone's platform with Android. Simply put, it's not the same sport.
Android based phones will be very, very open. This means: a lot of apps for the same purpose, some crappy, some great, with the best of them probably forgetting about design slickness and bringing lots of functionality with great attention to detail. There will be many different Android devices around, which means that some will support some supercool applications while the others won't be able to do so. There will (hopefully) be a fanatical community of developers for Android, and it will yield some great applications.
On the other hand, iPhone is one device that will change over time, but there will never be a wide variety of iPhones. It will never have every little bit of functionality that hardcore geeks salivate over, but it will be slick, applications will work without many flaws, and the entire thing will be a lot easier to use.
Sounds familiar? Yup, it sounds like Linux vs. Mac OS, or - to a degree - Linux vs. Windows.
So, it's not about which one is better. It's about which one is better for you. Like command line? Like tinkering with hundreds of options that common users can't even begin to understand? Like having a choice of 15 apps that do the same thing? Then Android-based phones will be right up your alley.