Google Android is by no means just for Mobile Phones. It is based on the Linux Kernel and is open to developers to write code in Java so there is plenty of functionality that can be added to it.
Also the beauty of Android is that as it is designed to work on a mobile phone it should perform extremely well on a netbook. Ok so you are not going to have the power or software options of XP but who wants that on a netbook anyway? They are designed to be ultra portable and allow you to access the net anywhere and this is what Android should be perfect at doing.
Asus have officially announced their plans to release a Netbook using the Android OS and I am sure many other companies will follow suit.
Asus say they could release an Android Netbook by the end of the year.
I would also imagine it would mean that we will see even smaller netbooks and almost certainly a few MIDs (Mobile Internet Device) running Android over the next few years.