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Support for paid applications is already built-in to the RC33 update which was recently rolled out to T-Mobile G1 owners. I'm not sure yet if the 1.1 SDK is required for developers, but as one reader pointed out the new SDK is needed if you want to develop internationalized applications. Most users should have already received RC33 already, so it's probably safe to go ahead and upgrade to the 1.1 SDK now.
Google Checkout will serve as the sole payment and billing mechanism for Android Market (no surprise there). That means developers need to sign up for a merchant account. I tried the signup page earlier today and it was unavailable, but others are reporting no problems getting in.
[ Join: The growing Android community at Planet Android ]
Limitations: As of this writing, developers of paid applications have to be from either the US or the UK, and end users have to be from the US. Google promises to add more countries to the list as soon as possible. By the end of March they expect that developers in Germany, Austria, Netherlands, France, and Spain will be able to charge for programs. End user support for additional countries will be added "in the coming months". Free applications are available now in more countries, with Australia being added this weekend and Singapore in the coming weeks.
[ Learn: How to write Android applications with Hello, Android ]
To celebrate the announcement I'm planning to release a paid application of my own and share my experiences in a new blog series called "Market moves". Join me on this exciting journey!