What do most people use?
The best thing about Android is user (and developer) choice! While there are SIM-unlocked and hardware-unlocked phones targetted specifically to developers, one can develop for Android with a regular Android phone, so it is really a matter of personal preference (e.g. do you prefer a physical keyboard or a virtual keyboard?), cost (how much is the phone? how much is the plan?), coverage, etc.
If you are as lucky as me, the best is to get one for free at a Google event ;-)
Google sells developer phones (HTC Magic, 400$, only to registered developers) here:
http://market.android.com/publish/buyDeveloperPhone
But Ebay is actually cheaper than that.
Depending where you live and your contract, getting one from your mobile carrier might be the best option.