Most parts of android run well on the emulator. fiXedd answered your question well, I just wanted to add my two cents.
The only problems you will run into with the emulator will come from wanting to use the sensors, including the Camera (although there are some workarounds on the internet that attempt to connect the emulator camera to a webcam) the accelerometer, orientation, and geomagnetic sensors. GPS is a special one - the emulator will not crash or otherwise act strange if you access it using code, and you can use the tools provided when you install the SDK (in your SDK folder under tools/) to send mock locations to the emulator. Beware of round off in coordinates on doing this, and understand that it is a fairly painful process still. Using KML to auto-play a route is much easier than typing it all in.
For development, you will need to avoid using the sensors if you are running on the emulator. For around 150 (ebay as of today) you can get a G1, and it is a very simple matter to avoid the setup screen, allowing you to develop/test on a device with sensors without ever having a SIM card.