How quickly people forget that the first Android phone, the T-Mobile G1, didn't even have an on-screen keyboard, it relied completely on the hardware keyboard it had.
Virtual keyboards only came to Android with an update to version 1.5 and so called "Input Modules Framework" - that's March 2009, over 2 years after Apple announced the iPhone!
Source code headers in that Android framework confirm this by stating "Copyright (C) 2008-2009 Google Inc.".
These facts are undeniable. No matter how you twist things, or show videos of rushed, unusable, prototypes filmed 10 months after the iPhone.
Obviously, as kdarling said, full screen phones were not in Google's original plans until they got their "Oh ****" moment following the iPhone success. They probably originally had thought the same as Ballmer - screen keyboards would never fly.
The funny part is Google apparently didn't learn the lesson then, and years later was still repeating the same mistake:
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Exhibit A: Remote controller for Google TV
Going to point out again the header file means nothing. Just because the first device did not have it does not mean it was not there. The HTC choose not to put in on the G1. The test devices would of had the onscreen keyboard in it since it was pure testing.
You are going for bashing. The video posted proves that Google had it in place months before hand. To the OS it means nothing if it comes from an on screen keyboard or hardware. The keyboard sends the key press code to the OS and from there handles it. Standard code from keyboards.
All the API did was make it really easy to provide 3rd party keyboards. Nothing more nothing less.