Dalvik isn't Java but it uses the same languages and several java libraries are compatible, for instance popular Apache commons-httpclient. And since Android doesn't claim to be java compatible any library could refuse to work.

Given the resemblances I'd say Android is as much Java as Google Application Engine is. Not everything java will run in it but it's similar enough so developers can use their java development infrastructure, knowledge and work around the discrepancies/limitations.

And android now has a jit.