In short: Nokia would give Android so much market share that Android would be unstoppable. Which sounds nice, but it would mean that Nokia would very quickly have almost no leverage over the ecosystem.
So, his reasoning is based on the idea that Microsoft depends on Nokia as much as Nokia depends on Microsoft. When WP7 fails completely, life will go on for Redmond, but will be over for Nokia.
You have leverage when your partner needs the partnership more than you do. In this case, Microsoft has as much of it as it wants. As soon as Nokia is committed to WP7, Microsoft can do whatever it wants with them and they'll just put up with it, because they need the "partnership".
Elop is not dumb. He is screwing Nokia for Microsoft.
He gave a few answers that I think the average bystander would assume were being made by a Microsoft staff member. This is one of them. The one about the priority being to grow WP7 when asked about competition with other WP7 manufacturers was another.
In short: Nokia would give Android so much market share that Android would be unstoppable. Which sounds nice, but it would mean that Nokia would very quickly have almost no leverage over the ecosystem.