Oh, it can handle it...that's not the issue. The issue (as much as I hate to say it) is that the manufacturers want you to buy the latest and greatest phone. Samsung did this very thing with the Galaxy S lineup. The original Galaxy S got Froyo much sooner than the US variants. At the same time that the US Galaxy S phones were all sporting Android 2.1 (all basically the same hardware with the biggest difference being the GSM or CDMA radio), the Nexus S (with basically the same hardware) was released with Android 2.3. It's a game they are playing and will continue to do so until it bites them in the rear!
People complain about fragmentation and while this is something Google wants to control, most of it is in the hands of the manufacturers and/or the carrier.
Now to answer your question, you have to go with what feels right to you.
Android and iOS are both great platforms. Most of us on this site have a preference for Android but I can say that while I would never buy one for myself, the iPad2 is the best tablet on the market. However, the iPhone4 is NOT the best phone on the market in my opinion. It doesn't have the best specs, no 4G, the screen is too small (for me anyway), the design is awful, and having to deal with iTunes means the phone would have to be 10 times better than anything else on the market.
Now, that is just me. If someone said they love iTunes, I wouldn't question that and I'm sure some people don't love it, but don't mind it either. Not having any widgets might not be a big deal to you (I wouldn't roll that way). Maybe glass covering the front and back of the phone seems like a good idea to you
.
My wife loves her iPad, but hates the iPhone.
But that makes sense to her and because she is the one that has to live with it...it's cool.
But if you are going to go with the iPhone 4...I would wait until September (current rumored time frame for release) and get the iPhone 5 instead.