I don't think the iPhone will be a niche. As long as Apple keeps making good phones, it'll have a sizeable user base given that tens of millions of people already own them, though it won't necessarily be as huge. Remember, too, that the US isn't a microcosm of the world smartphone market. Android is big in the US because Verizon decided the Motorola Droid was its halo phone, and the lack of a Verizon iPhone meant Android was 'safe' (although I do think it was going to grow rapidly, regardless).
However...
I would seriously dispute the notion that Android is open in the way you think it is. It's open to the carriers, not to you. Forced Bing on the Samsung Fascinate? A ban on non-Market apps on all AT&T Android phones? Bans on the official tethering and hotspot options on virtually every US carrier (and many others worldwide)? Uninstallable apps and OEM-specific interfaces you can't remove? You can put a custom ROM on some phones to get around it, but the emphasis is on "some." Not to mention that "just go load a ROM from XDA-Developers" is not a viable sales strategy for Joe Everyday User.
Moreover, I'm very worried about Google cozying up to Verizon to sabotage net neutrality. If you hadn't noticed, Google and Verizon have jointly proposed that any net neutrality laws exempt wireless -- you know, Verizon's core business. Google is knowingly selling itself out, and selling you out, because it wants to milk that cash cow even if it means hurting your experience. I l like open and I want Apple to be more open than it is, but don't fool yourself into thinking you actually have the control you want with Android.
For a retort to Andy Rubin's simplistic "response," check what Facebook's Joe Hewitt said.