Google recently released figures on the version numbers of Android phones accessing the android market. It's just validating what mostly all developers already know. All 1.5+ versions are important to support and different screens are as important.
Users are very fast to let developers know this, though. Already 3 months before the OTA update of Android 2.2 for my Nexus One I got a message about not being able to find an application in the 2.2 market from a user. The error is common, a default manifest file that has limits on API versions. I couldn't have tested the application on a higher API level at the development time so the abscence in the untested OS was not really an error. However it shows how easy it is to get feedback from users to correct such errors.
I have also gotten feedback on enabling the 2.2 install device (SD card or phone memory) as well as automatically generated crash reports that are also new in android 2.2. Adding to that it is for an application exclusively for Sweden where no 2.2 device has even been sold as of yet (but of course imported in different shady ways).
The chart below shows how important it is to keep backwards-compatibility in your applications, just like for web development and old browsers. Luckily the android emulators are very good and theres a fully functioning image for each and every API level. There's also other developer emulator images circling around where you can test the functions missing in the default images, such as a paid-app enabled market.