Yes, this is true! An iPhone dev team hacker has successfully ported Android 1.6 OS on iPhone 2G. It was obviously a team work. Some other hackers like harmn1, posixninja, jean, marcan and saurik helped planetbeing (hacker) to bring Android on iPhone platform.
The hacker has published a video with some important information on his blog. You can watch Android 1.6 running on iPhone in following video.
Android 1.6 runs on iPhone 2G
The hacker has also mentioned that this success can also open the doors for flash on iPhone. However, the development process is not over yet. So, I would not recommend anyone to try this trick, as it may have bugs.
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