I don't think it was Google's intention to sell a lot of Nexus One units. I believe that they wanted to set a standard for Android phones over which other manufacturers could improve. Android phones before Nexus One were not good enough and they wanted to tell people that this is how an Android phone should be.
Google never wanted to try to cut out the middle-men. Google didn't want to push the phone too much. They just wanted to put it out there to be able to let them know, "Here, look, this is what you can do with this technology at this price point."
If you pay attention, you'll often see companies do strange and counter-intuitive things because their goal isn't simply to make money on every single product. Study and learn, because they often aren't being nearly as stupid as you might think.
It's the same strategy as Chrome. They could just have made another browser and pushed it via tie-ins, lock-ins and millions of dollars in advertising. Instead they rebuilt the browser from the ground up for speed and security. This prompted everyone else in the browser space to up their game too.
Google is betting that they benefit more from a lot of competitive browsers, than from having an iron grip on a single browser. Conversely, they can't allow someone else with an iron grip to hold the browser market back to benefit themselves. The same is true of the phone market.
Well Chrome is a somewhat different strategy. Sure, Chrome tried to raise the bar. But Google has a lot of other uses for that browser technology. It is used internally, it shows up in Android, the JavaScript engine is usable in a stand-alone environment, it will be used in ChromeOS, etc. Google didn't just release it, say, "We've made our point" and then stop.
Google's strategy with the Nexus One strategy is an occasional strategy. If you're not planning to go into a line of business, it is a lot of money to spend for uncertain reward. That said, I'm quite sure that Google would not be adverse to using it again if they found a good reason to do so.
