They did very much cherry-pick apps that run poorly on the N7. The equivalent would be demoing the N7 against an iPad running iOS apps that only have an upscaled iPhone variant.
Obviously there are cases in which the opposite is true and the interface on Android is better, but not many.
In my experience, Android apps on tablets are horrible. Apple has the upper hand here in controlling the hardware, and releasing the iPad mini with the same resolution as the iPad 2 was a really smart move. Instant compatibility with all existing apps.
Instant technical compatibility, definitely, but a 20% reduction in physical size on everything has some potentially nasty usability implications. A 44px-high button that is 0.333" high on an iPad is 0.27" high on an iPad Mini, for example.
iOS apps are laid out in pixels, while Android apps are laid out with physical units (in, mm) or density-independent pixels, which means that a screen size change doesn't necessarily mean a usability change on Android. Two totally different layout mechanisms, and while this means that Android apps are less precise in their layouts, I'll argue that it improves usability across a range of devices.
Hardware control has basically nothing to do with it. Far fewer people have been motivated to create two (phone/tablet) versions of Android apps than iOS apps. Its almost certainly a volume issue.
Why aren't developers motivated to do that? Hardware control.
Look at the top-selling Android tablets. Every single one has a different screen resolution/pixel density; Nexus 7 has 1280x800 (216 ppi), Kindle Fire HD has 1024x600 (169 ppi), Nook HD has 1440x900 (243 ppi), Galaxy Tab 7.7 has 1280x800 (197 ppi), etc.
It's an absolute nightmare for developers, and this is just tablets. The Android smartphone market is even more fragmented, and there is just as much variation in display specifications.
If that was the case, the smartphone apps wouldn't have come about either. But they did, as evidenced by the made-for-smartphone apps that look silly on tablets, which is what this whole conversation is about.
The fragmentation in smartphones is incomparably worse than the tablet market. But Android has nice ways of dealing with it in display-independent ways, and they work.
You're aware that development for varying hardware specs is inherently supported by Android, right? It isn't like iOS where you assume 1024x768 at either 1.0 or 2.0 pixel densities. Android, at its core, assumes varying device metrics, and layouts and development practices reflect that.
I don't really think hardware control is the issue here.
Android lets you measure in device independent pixels, though (i.e., ppi doesn't matter) and automatically resizing layouts (something that arrived in iOS 6, I believe). So it's not as bad as all that.
