I would guess that Google shrugs off "Just 21% of Android users purchase one or more paid apps per month, compared with 50% of iPhone users". A lot of the free apps are ad-supported. Google bought AdMob which seems to be the dominant way to deliver ads to Android phone apps. From Google's point of view, having lots of free ad-supported apps is just fine. I agree with O'Neil that the incentives for investing in development for Android are bad now, but that must be more a function of the smaller number of Android devices out there than the Android Market working poorly. More Android phones will get released and there will be more money in the pot for developers.
A more sophisticated search interface to the same selection of Android Market games would be good. I feel like you need one interface for newcomers, (the current one) and another interface for power users, i.e. Let's see all the titles from one publisher or have some tags or subgenres to look through. Still, I have never had much trouble finding anything with keyword searches. So I don't know what all the whining is about.
Hardware compatibility is a BFD, and yeah, it's only going to get worse. Unsophisticated developers will always be inclined to test just on whatever phone they have. And there is no practical way to make Android SDK developer-proof at this point. I don't want the solution to be filter-by-hardware queries on Android Market. It is possible to write one app that runs on all devices, it's just that developers don't write the apps correctly. There might be some automated testing tools that run on the submission side that check for more obvious errors like "Force closes" on hardware X. Maybe also some sort of automated collection of it-works-on-hardware-x votes from users downloading an app will earn an app a certain gold star, which in turn can be used to filter out "doesnt-work" apps from an individual users search results.
But holy jeezus, do not do not do not let the goddamn carriers run the app store. Oh my god, the horrors we have put up with. If BREW were a physical object, I would happily defecate on it.