He has an additional cost you aren't factoring into the equation: opportunity cost. This is the money he loses by not focusing on iOS. He isn't saying the app isn't worth building, he's saying the app isn't worth him building.
Seriously, these term are generous as far as these kinds of deals go, but I'm not sure you could make money on it. It would really depend on how good other existing clients are.
He's going further than saying it's not worth him building, he's saying it's not worth building at all. If it was worth building, he would hire someone to do it for him. He's saying he could accept it if it falls into his lap, costing him exactly $0.
I think none of this is relevant, it's pretty clear Arment personally doesn't believe that anyone can make an 'Android Instapaper' with the same quality, features, and level of support, running on enough compatible devices and sold through enough Android marketplaces, to make it _as profitable_ as just concentrating on iOS and be done with it.
The challenge he puts forward is for someone who disagrees to take up. Personally, looking at the Android ecosystem and the quality of applications in the Android Marketplace, I think he's right. It's perfectly possible to write great Android apps, and many exist, but if you look at who makes them, they are without exception applications made by big corporations who don't make money off the apps themselves, but from associated services, ads, etc.
Seriously, these term are generous as far as these kinds of deals go, but I'm not sure you could make money on it. It would really depend on how good other existing clients are.