The Droid screen is 480x854 while the G1 is 320x480
reference. You probably need to utilize the drawable-hdpi, drawable-mdpi, and drawable-ldpi to get the correct image drawn on different devices. As long as you name the files in those directories correctly, it will automatically select the correct resolution for the device it's running on. If you switch to direct draw, that problem goes away, however, you need to be careful about the size values that you use so that they scale properly to other resolutions.
You can (and should) create multiple emulators of different screen resolutions to make sure things look right.
I've never tested the keyboard event in the emulator, but from what I've read, people seem to say CTRL-F11 triggers the keyboard open/close event. I've used that to change orientation, but maybe it also changes the keyboard as well. You can test this easily by throwing a breakpoint in your config change handler and checking out the contents of the config object.
As far as your comment about the screen size being small, I have to disagree. If you force your layout to be landscape, you have as much horizontal room as you need. Then, maybe don't draw giant images for your tubes. Rather, direct draw smaller shapes to fit more on the screen. I'm sure that you'll be able to get more on there and make it useful. As a tip, when you're direct drawing something like this, make it all based on constants so you can quickly change things like peg radius, peg x/y grid spacing. etc
You can get quite a bit on the screen in landscape mode if you don't care about multitouch (if you think there are differences between screen resolutions, you should see the differences in multitouch capability).