This is really too bad. Up here in Canada, we're stuck with disgusting 3 year contracts (the 2 year ones have hardly any discount) with egregious profiteering (world's highest text msg prices for instance) and a culture of neglect after you've bought a phone from our oligopoly of carriers. The N1, expensive as it was, really was the best option for a good, unlocked, and free (as in freedom) smartphone. Any Android you get up here will assuredly be abandoned by the carriers - after all, new firmware means less sales according to the carrier. It really meant that the only consistently upgrade friendly Android phone was the N1.
Where I think Google failed was in not offering more choice like a certain fruit-labelled, obsessed-with-lock-in software maker. After all ~$500 for a phone, cheap though it may be over the long run, is a psychologically difficult barrier to overcome. I do believe, however, that having a few options that were cheaper (with appropriately pared down features) could have made it a more profitable venture. Sadly, I would have bought an N1 in the near future, but now it looks like I'll be sticking with my dumbphone.
Furthermore, trusting people to make buying decisions on long term fiscal calculations (without any assistance), might have been ambitious in retrospect. Maybe putting a cost calculator on the N1 website might have helped?