Isn't Google the default search for iPhones as well?

And not the default on Verizon Android phones.

I don't think it's just about search. I think sometimes Google does things Because They Can and then try to figure out how to make money later. Android's most realistic reason for existence, IMHO, is to ensure that Google users can take their data with them. If there was no Google phone, then the world would stick with Exchange, and GMail is not Exchange.

I always thought that Android's raison d'etre was to prevent any other company from dominating the smartphone business (Apple having apparently the best shot at this, but would still apply if Microsoft or RIM seemed likely to) because they would then have a huge opportunity to cut Google out of the loop - they could use Bing for their default search engine, have a built-in mail app that's not Gmail, etc.

Yes, but they pay for that privilege. I haven't seen any public figures of how much that is, but it did get extended for a year or two recently.

There's money back and forth between these companies all the time. It's just behind closed doors for 90% of it. Patent suits are the equivalent of tabloid coverage of a public argument. It could very well be resolved behind closed doors like many other suits.