I've been developing on Android for well over a year now. At Google I/O the Android team dismissed the idea of fragmentation, saying they prefer the term "progress". Is fragmentation a problem? Yes. Is it such a big problem that it should prevent someone interested in the platform from developing on it? No.
The Android engineers are only considering fragmentation in the context of having a range of older and newer firmware versions. There is the horizontal fragmentation of hardware (i.e., a number of different devices running the same OS version), but there is also the overlooked horizontal fragmentation of the firmware. Just about every manufacturer has modified Android in some way, usually by creating their own custom UI to "sit on top" of Android. But sometimes this ends up affecting deeper functionality than just the top layer of interaction. E.g., HTC has the Sense UI, Motorola has Motoblur, and Samsung has TouchWiz, which are all their own custom modifications of Android. So in reality there might not just be one version of 2.1. In addition to stock, there might also be Sense 2.1, Motoblur 2.1, and TouchWiz 2.1. And this isn't even considering custom ROMS. I've run into (albeit rare) cases of exceptions occurring on 2.1 Sense that don't occur on 2.1 stock.
I have 6 phones for testing: G1, Eris, Tattoo, Droid, Nexus, and now the Evo (thanks to Google I/O). Four of those were gifted either from Google or the manufacturer, so if you put in the hard work to make reasonably successful apps, you will get support as an indie dev.
Do you need that many phones? Probably not, the simpler your apps are (which should be the case if you're new to the platform). If you're developing games, especially ones using input other than the touchscreen (e.g. accelerometer), you will probably want to invest in at least 3 devices.
So fragmentation is a very real problem, but it's not a very big one, and honestly I'd take the freedom and ease of development and deployment on Android over the iPhone any day. And FYI, as an indie I'm currently generating a good salary from Android development alone.