Microsoft is not buying Nokia, only the Devices & Services division of Nokia, which includes its phone business. However, that might not prevent Nokia from setting up a new phones business. Perhaps it doesn't make much sense, as Microsoft does get the right to use Nokia brand for 10 years, so re-entering phone business would be rather confusing for Nokia.
Now, if the Android phone is made by the Devices & Services division, it will be transferred to Microsoft, and the Android products may be terminated at some point. It's hard to say - Microsoft could be trying to confuse the market somehow - with existing pantent licensing by Android phonemakers and the ongoing patent cases, Microsoft may try to shake Android markets with a cheaper device for which it has all the patent rights - it now can use all Nokia's phone patents as well, so making phones is almost patent-free, unlike for other Android phone makers who have to pay licensing fees to Microsoft for certain patents. So, making low-cost Android phones could be much cheaper for Microsoft than for others. And, as it doesn't use Google Play, it would bring no revenue to Google.