In my experience, in the Android market, app creators are using "open source" as a marketing attribute. People are made aware of openness, and some seem to actually appreciate that.
But these apps are few. Free (as in beer) apps, on the other hand, are plenty. They account for ~70% of the offerings on the android market (http://www.androlib.com), and their share in terms of downloads is even higher. With these "free" apps, ordinary people care little if they can give the app to their neighbour - after all, neighbour can download the same app for "free" any time if he wants. The freedom to improve and modify the code is only valuable for hackers, a tiny minority of users.
Whether we like it or not, the "Market" business model is attracting not only more users, but also many more developers than the FOSS model.