It seems as if Android is going to try to avoid splitting the OS between smartphone and larger displays. I think this is a wise choice, but the implementation of the UI specifically will be crucial.

As I understand it, they're using 'fragments' that are basically UI elements that can be automatically repositioned based upon the screen dimensions and resolution. So for example on a tablet, these fragments would be side-by-side ala a pane display, though on a phone, the same unmodified app would display with a fragment on multiple screens (think slide left)

This is simple, but very smart. Take a look at most larger format apps on traditional desktops, and you'll see that they are basically multi-pane layouts. This provides very functional backward compatibility for smaller devices.

It's a strategy where I can see pros and cons, but mostly pros. This will significantly widen the reach of developers that use good design principals and platform agnostic code, and eliminate the need to maintain multiple versions of an app.

The con is that it somewhat limits Android apps to lower power devices, but I actually think this con is a pro in disguise. Most apps can be light enough to work well on a phone if programmed correctly. I think that fast processors and wide buses, and loads of RAM have made developers somewhat lazy. Lower power devices force programmers to optimize more aggressively.