My understanding is that Android apps are sandboxed (a la Java or Flash applets) and need to request permissions for sensitive operations. This may help prevent obvious abuses and allow carriers to restrict problematic operations post-launch.

And Blackberry, Windows Mobile, and Palm devices (and PCs) allow users to install arbitrary applications that they get off the internet, and their world has not collapsed yet. The Android Market might even be considered an improvement over these software ecosystems because it provides a de facto central location for flagging problem apps.