Andy Rubin on the Official Google Blog:

While the global adoption of the Android platform has exceeded our expectations, the web store has not. It’s remained a niche channel for early adopters, but it’s clear that many customers like a hands-on experience before buying a phone, and they also want a wide range of service plans to chose from.

He goes on to say that their plan is to increase retail availability of the Nexus One. And once they’ve done so, Google will be transitioning their online store into a showcase for a variety of handsets.

This makes sense to me. New Android handsets are released all the time and Google would prefer to sell their flagship handset for 8-12 months before moving onto the next high-end device. But, it doesn’t take long for all those Android manufacturers to release a better handset. Google has chosen their best option and I hope this helps push everyone (Android manufacturers and competitors alike) to innovate.