The emulators available with the SDK are actually quite good. That said it's always best to test things on real phones. I think the two main things you'll have to deal with in terms of device fragmentation are screen sizes and processor speeds. As far as I know nearly all devices have capacitive screens and support rotation, so those aren't issues.
In terms of speed, the two main things are the 'old generation' phones with approx 500MHz processors such as the Hero, G1, etc and then the new generation with 1GHz processors like the Nexus One.
Screen sizes, again you've got 320x480 on most older phones, and either 480x800 or 480x854 on newer phones. Android has an easy system for handling different screens densities and sizes within the same application, so the issue is more "How good does it look?" when dealing with graphics. There unfortunately, you may just have to either rely on the emulator for the size you don't have, or get access to a second phone somehow.
Edit: I didn't actually recommend a phone. I'd vote for the Hero or G1 now as well, simply because they're the older phones with smaller screens and slower processors. If your game is compatible with them, it's likely to be compatible with most other devices. (Yes, screens even smaller than the 320x480 exist, e.g. notably the 240x320 on the Tattoo, but I don't think they're very common.)