The Engadget article went for the click-worthy sensationalism, and failed to present the important points. I see the same confusion in some of the posters here:
1) emulators are not piracy and are not illegal as long as they don't illegally include copyrighted material such as a BIOS dump. A "clean room" reverse engineered emulator can be perfectly copyright safe. And patents on hardware (an enitrely different thing) don't apply, as they would only protect in case of a different vendor significantly cloning that hardware implementation.
2) legal emulators are not infringing per se on Android marketplace publishing agreement, unless Google decides to change its policy from now on due to pressure from other vendors. The emulators were accepted on the Android Market and I'm told other emulators are still being sold on it.
3) the particular author (Yong Zhang) has been basing his Android emulators on existing code that was either GPL or under licenses that prohibited commercial use. He never complied to the requirements of the GPL or other licenses even after precise requests, google for "Yong Zhang GPL" and you'll find news from many months ago.
Result:
the license issues being officially submitted to Google's attention are most probably what caused marketplace suprevisors to revoke Yong Zhang's seller account and remove his "products". Selling material on which he didn't have commercialization rights is evidently against the Android market policy, being a copyright violation. Not copyright of Sony or Nintendo, mind you, but the copyright of the original emulator coders.
You'll still be able to run emulators on Android, as it's not controlled a-la-Apple in what you can or can't run on your devices. Moreover, unless their policy changes overnight, fairly licensed and copyright-respecting emulators will still be sold on the Marketplace.