There's no absolute "better". There is "better for me", "better for you", "better for this specific activity", etc.
I have been surrounded by iPhones for a couple of years, now. People at work, one of my sisters (and her S.O.), I'm constantly hearing about the iPhone. I have used them, been frustrated with them, etc.
As a computer expert, there was no question: DROID (and Android) destroys the iPhone in terms of functionality. On the other hand, if you have trouble using a PC or a Blu-Ray player, you'll probably be more comfortable with the iPhone, which has tweaked the GUI and limited the functions to the point where nearly anyone can use it without much, if any, learning.
So, there's a personal element. If you're on the fence, try both. Seriously... not just in the stores, but use some from friends.
There are some definite wins, though, for each:
: There are some good games on Android. But the iPhone market is crazy for games. There are more games on the iPhone than on Gameboy and PSP combined. The 3GS is the one with the real power for 3D game play (essentially the same performance as the DROID, about 3-5x faster than previous iPhones).
: The iPhone was the first smart phone I felt did a useful version of web browsing. I had a Treo, it ran the Palm browser and Opera, but it was always lacking. With that said, the DROID completely blows the iPhone away on web browsing. A big part of that's having 2.6x more pixels on-screen.. in landscape mode, you have 854 pixels across. You can actually read some modern web sites. You can also download any number of alternate browsers, to get tabbed browsing and other cool features. Coming this year for Android (and never for iPhone): Adobe Flash and Firefox (the mobile version, Fennec).
: both devices play most modern audio formats: MP3, AAC, WAV, etc. DROID also supports Ogg Vorbis and WMA, all DRM-free. The iPhone supports AAC with DRM, and some custom Apple formats, in addition. The big win on the iPhone is the audio player -- same player you get on an iPod, it's been honed for years for this job. Big win on the DROID... while the built-in player is simple, any add-on player works exactly as well. So you can play Pandora or Museek or other players exactly as well as the built-in.
Video converted from HD to 848x480 in AVC looks stunning on the DROID. Big win here on resolution. On the other hand, you can buy all kinds of video for the iPhone, nearly all under DRM, from the iTunes store. So for me, as a video guy, the DROID is the clear winner. If you don't shoot films and don't know how to make your own AVC files, the iPhone may be a better answer.
: The DROID camera is 5Mpixel with focus. The iPhone 3Gs is 3Mpixel with focus. The other iPhones are 2Mpixel without focus. With that said, the DROID camera can be a bit noisy... they improved its performance once already. I think it's a bit better than typical iPhone shots, but not as much as you'd think. Focus is very good, though, because it enables things like barcode scanners. Scan a code in a store, get instant price comparisons. I used this heavily while Christmas shopping. The DROID does excellent video at 720x480 (same standard resolution as DV camcorders), it's far superior to iPhone video. Neither has a real zoom.
The stock DROID camera app is a bit quirky, but has many useful options. When you turn the DROID to portrait mode, there's a button right where a camera button should be. The iPhone photo app is pretty weak, but there are many replacements in the iTunes store.
: This is kind of a matter of taste. The iPhone does sync ok. It's not as good as the Palm on data issues, but it more or less rocks on media sync... it was built on top of the iPod, after all. Android phones are kind of the next way of doing things, but it's not quite finished.
Google's not a PC company, they're an internet company. So their approach is, you're always synced. I go and add a contact to my Gmail contact manager online, and it just shows up in DROID's contact manager. Same with calendar, etc. These are the kind of things that web sync does dramatically better than desktop... I can always get to the data. There's no definitive media sync, though... music and video from your desktop PC, photos and videos you take on the phone, they just kind of stay there. Being a computer wiz, I have no problem mounting the DROID as a USB device and dragging stuff to and fro.. but that's so 20th century. I should be able to have wifi sync do this automatically, based on a set of rules (eg, "download all new videos and photos", "automatically sync new music", etc).
: The iPhones is built-in, and if you're a serious iPhone user, it won't outlast your 2-year contract. The DROID has a replaceable battery. In my experience, the DROID generally runs a bit longer on a charge, though if you're really using either device, you'll recharge every day. DROID wins. As well, you need a custom cable to charge the iPhone. The DROID uses the now standard USB Micro-B connector that every other cell phone company has decided to use for charging and data sync. And it'll charge from nearly any old USB port.
: The iPhone is on AT&T. It has a faster potential download speed (7.2Mb/s vs. 3.1Mb/s), but on most 3G links, it's pretty comparable (3.6Mb/s is the limit in all but about 40 cities, as of this summer). The iPhone is limited to 384kb/s for uploads, the DROID does a peak of 1.8Mb/s up. The GSM/3G system used by the iPhone allows data and voice at the same time (you have to decide if it's useful... I used a Treo for 3 years on Verizon and never realized this was even an issue), DROID is data or voice... well, we'll have to see about Skype or other VoIP connections, which will work fine, data+voice. By area, about 20% of AT&T's network is 3G, but it's pretty well supported in most major cities. Verizon is about 99% 3G. Both drop back in speed, and eventually to 2G, as you move away from a cell.
: The iPhone seems to be a rather bad phone. My sister likes to call me while she's driving, and it's rare for her phone to not drop out. Some of this is the fact that GSM phones drop calls more easily when they're in 2G mode. But there are also at least reports that the iPhone itself has issues here. I don't use the phone mode all that much, but I have found it to be a perfectly acceptable phone: no dropped calls, superb coverage (South Jersey).
: The iPhone OS is obviously a custom Apple thing. They lock it down... developers can only launch applications, they can't run daemons or other background programs. Only Apple apps can multitask.
Android is open source.. if you're unhappy with your phone, you can replace the OS with newer versions or new features, at least if you have the skills. Android multitasks... there's no advantage given to Google apps, any application can run in the background or as a daemon.
: The iPhone wins on the sheer number.. there are tons of applications in the iTunes store. They also sell music and video, created just for the iPhone and iPod.
The DROID comes with an Amazon music app... I was using Amazon for the occasional MP3 download before I bought the DROID: they're DRM free, and Amazon offers lots of special deals you can't get on iTunes, like $0.99 albums. The Android Market is where you buy apps. The apps market is very rapidly growing, very good, but not quite up to the Apple level yet. On the plus side, Google does much less censoring of apps (I have a Commodore 64 emulator for the DROID, that same app was illegal on the iTunes store), and anyone else can sell you an app directly, or start their own apps store. This is actually critical for some kinds of business use... some business apps are sold directly to a company to distribute to their employees. That's impossible on the iPhone.
: Apple's got a strong product right now, and they're usually the #3 smart phone maker in the global market. Also the most profitable.. largely because they only sell smart phones (along with RIM), most other companies sell regular phones, too. Apple has the most successful music store online, and a very tightly integrated market. They have crazy fanboys, who drink Steve Jobs kool-aid and think, if Apple's doing it, it must be right.. and they make a pretty effective unpaid sales force. Apple has also had some of the best marketing in the computer biz, since back in the 1970s.
Android is currently being supported by every major cell phone maker (which also includes CE companies like Sony and Panasonic, PC companies like Dell and Asus) except Apple, RIM, Palm, and Nokia. It allows such companies to modify parts they need for their hardware, change the home screen (GUI shell) for something else if they like, and yet still remain compatible with the whole Android infrastructure. In short, it's doing for smart phones and other devices what MS-DOS and Windows did for the PC. Only, via open source, and well, it doesn't suck, it's a very good design.