The Droid phone was rooted, not Android. There are a lot of Android devices out there that have been rooted, hackers can check out the XDA forum (pick a device, the G1 is the Dream and the Magic (MyTouch/Google Ion) is the Sapphire) - http://forum.xda-developers.com/
For many of you who are unfamiliar with "rooting" (as I was before I went from iphone->android) it's essentially the same as jailbreaking an iPhone. Somewhat obvious, you gain root access and therefore access to all of the filesystem and more. This is what lets you do things like flash a replacement OS like CyanogenMod or use things like WiFi tether.
For those more interested, it generally involves an finding exploit and flashing a replacement "recovery" system. Once you've flashed over the recovery system (basically a bootloader) you can boot into the recovery system and flash your desired ROM.
If you're willing to hook up to USB, TetherBot (http://graha.ms/androidproxy/) works through the Android debugger and ssh tunneling without rooting your phone. It requires you to install the Android SDK, but I've been using it since I got my G1 last December.
For many of you who are unfamiliar with "rooting" (as I was before I went from iphone->android) it's essentially the same as jailbreaking an iPhone. Somewhat obvious, you gain root access and therefore access to all of the filesystem and more. This is what lets you do things like flash a replacement OS like CyanogenMod or use things like WiFi tether.
For those more interested, it generally involves an finding exploit and flashing a replacement "recovery" system. Once you've flashed over the recovery system (basically a bootloader) you can boot into the recovery system and flash your desired ROM.