What you lose
The next thing to be aware of is that the system on a chip (SoC) in a mid-range handset will be more pokey than the flagships phones. One of the keys to having a solid experience with a cheaper phone is making sure the software loadout is respectful of the slower chip. You should also not be lured into buying devices that are older. While the clock speed of some phones, like the Hero, seem similar to current mid-range phones, they aren't really as fast.
These application processors in mid-range phones are usually running on the ARMv6 instruction set, meaning the really attractive games won't run smoothly. A common clock speed to see in this day and age is 600MHz. That's enough to get most things done. You can easily browse the web, and run some background services. If you try to throw Fruit Ninja into the mix, it's going to get chunky.
If video chat is of interest to you, you're probably going to have a tougher time finding a good mid-range handset. Front-facing cameras are usually reserved for high-end devices, with a few exceptions. When they are present, the resolution is certainly going to be floating around VGA.
Lastly, If you pick up a mid-range phone you need to be very comfortable with the feature set it comes with. These inexpensive devices will not get a lot of attention in the update department. There are two reasons for this. The devices are slower, meaning newer versions of Android may have to be modified more to function correctly. Also, mid-range phones don't sell as well. The best way to tell if a device is getting updates, is whether or not it has a large user base.
The best mid-range phones on each carrier
The software varies a little from one device to the next, but they are mostly stock Android. The underlying version of Android is 2.2 Froyo. In our experience, the Optimus series are snappier than we would expect on a 600MHz processor. They also have 3.2-inch HVGA screens and 3.2MP cameras. The form factor of these devices is also very nice. They fit in the hand easily and don't feel bulky in your pocket. On any carrier, this is a solid choice.
If you're on Sprint, the Samsung Transform is definitely worth a look if the keyboard-less Optimus S isn't right for you. The Transform is an Android 2.2 device does not run TouchWiz, but is closer to stock. It has a fairly good slide out keyboard hidden under the 3.5-inch HVGA screen. It is also one of the few mid-range devices with front facing cameras. The SoC is a little faster than most at 800MHz as well. The Transform can be had for only $50 on contract. The Optimus S is free.
Over at Verizon, you can pick up the LG Vortex (the carrier's version of the Optimus) for just $20. It's not free, but that's still a killer deal. If you catch Verizon on the right day, you might even manage to snag a more high-end phone like the Fascinate or the Continuum. There are things to dislike about these devices, but they are going to be snappier than the Vortex.
Optimus T is a solid bet, as mentioned above. You can get this one free on contract, so don't even bother with the other free phones like the Charm and Comet. These are distinctly low-end. T-Mobile also offers the Motorola Defy for $99. This phone is going to be a bit faster with its 800MHz OMAP SoC. It also has a FWVGA screen and 5MP camera. The Defy is ruggedized and water resistant too. The Sidekick 4G is only $99 for those of you looking for a keyboard and front-facing cam in your mid-range Android.
Over on AT&T, the picking are a little more slim for mid-range phones. The LG Phoenix is the AT&T version of the Optimus One, and it is a good choice for only $50 on contract. Like with Verizon, you can actually nab a good deal on a higher end phone if you want. For $99 you can get the Inspire 4G on a 2-year deal. This is an unusually good deal in the realm of Android.
Many consumers are fine with spending heavily up front for a better experience in the long run. But these inexpensive devices are excellent first-time entries into smart phones. You have to make some tradeoffs in features and the kinds of apps you will be able to run, but not everyone needs the best handset money can buy. Have you bought a mid-range Android device? Was it a good decision?