The first problem with this rumor is that this isn't the first time that Amazon have hired Android developers. This same rumor went around the blogs back in August of 2010. In fact, the August rumors mostly trace back to the same blog on the NY Times website as the current rumors. Guess what? Both posts suggesting a Kindle Android tablet were written by the same author, Nick Bilton.
If he was wrong then, what are the chances he's right this time around?
But a bigger issue is that everyone shares a blind spot when it comes to new stuff. We all assume that a developer is working on hardware, not software. There's no reason for this assumption, but it exists all the same. I think we make this assumption because it's easier to conceive of a physical object like a gadget than it is to think of something as ephemeral as software. You can't touch it, so it slips your notice.
Take Sony, for example. In August of last year Sony started hiring Android developers to work in their Sony Reader division. Everyone jumped to the conclusion that Sony was working on an Android ereader. They weren't. A few months later Sony announced that they would soon have reading apps available for iOS and Android. That Android app was released back in January, and you know what happened to the iOS app.
I was the source of the Sony story, and lucky for me I didn't fall victim to the blind spot. I didn't assume it was either software or hardware. (Sometimes my foresight amazes me.) I'm pretty sure I was thinking that Sony was developing reading apps, but that isn't clear from my post.
But 3 different blogs credited me, and they all assumed that Sony was working on an Android gadget. They were all wrong - and that's the blind spot.
You could argue that past performance is no way to predict future behavior, and this is true. But that doesn't mean that the hardware assumption is a valid one. We don't know why Amazon is hiring Android developers.
TBH, any argument I could make in favor of software is just as invalid as the hardware assumption I debunked, so I'm in something of a pickle. We don't know.
Let's wait and see what happens.