Mario 64 style graphics would certainly be possible on Android phones already, the top end ones could run Mario a few times over to the honest. The biggest issue at the moment is the market, if someone released one it'd get bogged down with 1 star reviews from players on older phones, not running, incompatible controls, laggy gameplay etc.
iPhone and WP7 both demand multitouch, good cpu/gpus, enough memory for anything you might need, they're a lot less fragmented.
Currently it's like writing games to work on SNES and Gamecube simultaneously. Using a control system that MIGHT be onscreen pad, maybe a dpad, or possibly even none of the above. It's limiting, I think Google are planning on tidying it up for 3.0 though (which is still a good distance away), then we'll see some real meaty games!
As a new developer to Android myself, after working in the games industry for about 6-7 years now, on console, everything from PS2 to 360 Kinect. I'd LOVE to make a really kick ass 3d game, and absolutely blow everything out of the water quality wise. It'd require hiring 3d artists, animators, a sound chap, basically you'd have to have a LOT of faith it'd succeed and I don't think there are enough Desire and Galaxy S owners to make it worth while.
Even brand new phones, like the X10 don't support multitouch for example, they're not learning very quickly!
