HTC Dream / G1 should be the cheapest option. I got mine for 88 bucks sent from eBay ... works fine.
Actually, the OS may be Android 1.6 (I don’t remember how I eventually installed CyanogenMod), but it doesn’t matter, since you can still write and test 1.5 applications on it.
Update: according to the phone book Wikipedia page, the official version of the OS is 1.6.
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