I'm no programmer, but the real problem with the basic idea is that while Android is open source and free, the "Google Experience" apps are not open source. That includes the Android Marketplace as well as full Google integration. So the majority of these Android devices coming out don't have access to the Android Marketplace. I think most people would agree that the absence of the Marketplace takes a lot of the perceived value of Android out of the picture.
That said, there is a reason Android is being used as much as it is, which is that it includes a UI optimized for small screens, it can accommodate a range of screen dimensions and resolutions up to 800x480 (unlike Windows Mobile, etc.), it contains a number of standard functions involving internet access, media playback, etc., and it's free. So, if you look at the dual-screen e-book reader(s) using Android or the Archos 5 Android Tablet, those manufacturers don't have to start from the ground up but can use Android and modify for device-specific purposes (e-reader, internet browser, multimedia playback, text notes, calculator, et al.). But, no Marketplace. But on the plus side for those manufacturers, Archos, for example, can stop working on its probably terrible UI and just advertise that it uses Android.
So, the main attraction of Android other than the Marketplace is the optimized UI (such as it is). Working on the Pandora as if it were a Linux computer is intimidating. Fortunately, the Pandora developers are well aware of the need for an optimized UI.
IMO, it would be great if Android could be an instant-on OS for the Pandora, allowing internet browsing, PDA like functions with Google synchronization, Google maps (localization works surprisingly and frighteningly well without GPS), and multimedia playback. That package with a touch optimized UI would be a great secondary OS. However, it wouldn't be instant-on.
Actually, it seems to me that the Pandora is in a good position to drive the development of an open-source handheld touchscreen software community. I can't wait to see what they're working on firsthand.
Just my two cents. Android is a pretty fascinating entity, which is why we discuss it so much probably. The fact that it's coming from one phone and moving up to 50 devices in the next year is interesting. No other mobile OS has achieved that degree of growth in the recent past.