Here's how I see that -- embedded industry (and business in general) needs something they can rely on. They don't care if it's called Linux, Andoid, Red Potato or whatever. They just want something for free, for what they at least *think* somebody is standing behind.
If the mainline Linux can't go and provide that, somebody else will do (hm, Android?), taking the big piece of cake mainline Linux has at the moment. Indeed, Android will be actually no better than the mainline for someone's purpose to build a networked TV set, but Android is backed by Google and gives to the industry what they need -- felling of someone taking care about. And Google has the $$$ needed for hiring good people and making Android do what businesses need.
I'd say -- mainline, hurry up and don't shoot your own foot. ;)
See what Nokia did? They gad a golden egg called Maemo (or MeeGo or whatever the name), which could've kept them as the leader of that industry area, having everything under one roof -- own harware and own software. One can say that Maemo is a full-blown Linux with everything opened up and no Java VM's in between keeping things secure... I'll just ask if Windows Mobile is any better from that point?
Do you *really* think WinMobile is more secure than Maemo? And Maemo / MeeGo is now killed like a two-day chicken and left to rot. And what a great product that was. Now I have to throw my N900 in garbage -- because industry doesn't care about technically correct things, or things that require too much effort.
Do you really think that Nokia's CEO even knows the differenece between Win Mobile and something else? ;) It's all the same touchscreen pictures and revenue charts for him. ;) It's the same with embedded world -- they'll keep trying and go somewhere else when they reach point of "too much effort required".