The Nexus One is not designed to beat other Android phones, but to deliver the base technology at what Google considers a fair price, $180 with a two-year contract and $530 unlocked.
Other manufacturers will be free to innovate on top of the Nexus, creating their own user interfaces, applications, and price plans, but if they fall short or even sit on level terms with the Nexus One, buyers will go Google.
Note the contrast with Apple, which rigidly controls its entire ecosystem and fights both technically and legally to make certain no one goes outside the lines it draws.
Note also the contrast with Microsoft, which controls its software but avoids competing with hardware OEMs.
Note too the fears of many that by delivering an open source design Google might lose complete control of its own market. The Nexus One is its answer to that.
Google will freely let you do better, or go cheaper, and it will let you buy an unlocked handset built entirely on open source. But its market will be highly competitive, with the Nexus One guaranteeing other companies deliver value for money.
It's an interesting approach. Does it meet with your approval?