I did a 6 month student internship with Motorola software development (basically 6 months of full time work that counted towards my degree) and I can tell you that phones being in development for a year or more isn't unusual for the industry, especially if its totally new hardware rather than a variant of existing hardware. Plus, remember that these guys are voulnteers and not doing this fulll time.
As for the CPU choice, it has been chosen so that the Neo900 can be backwards compatible with the N900. Plus, its actually possible to GET this CPU wheras you cant even get Qualcomm parts (and the info you need to actually use them) unless you are really big and well established.
The Neo900 isn't meant to compete with the Galaxy S or iPhone, its meant to be a phone that takes all the good things about the N900 (physical keyboard, full Linux/X setup, openness) and make it better (faster CPU, more memory, better cellular radio, better WiFi, better Bluetooth, NFC support, more security, more control over the hardware)
Disclaimer:I own a N900 (and in fact am typing this reply on it) and would sign up for a Neo900 preorder if I could afford it. I am also involved in reverse engineering and code work for the N900 and Neo900.