I think there is no way they could go only WP7 - WP7 is controlled absolutely by Microsoft and Nokia cannot afford to be subjugated that way.
If they are really bold - and I kind of hope hey are - I would base it on Android but make it "better" - as in, devote huge resources to solve the long standing problems with Android - the UI is not slick enough, not smooth enough, the compatibility story is problematic, the market is polluted with low end stuff and much of the high end stuff doesn't run on all the phones.
If they forked Android and put out kick-ass awesome hardware with compatible but totally redone and beautiful iPhone-quality UI, a more curated market (without Apple lock down), bold promises about upgrades ("we will guarantee any phone we release will get current versions of the OS for 3 years") - they could possibly even steal the market leadership from Google on the Android platform. They are one of the few companies that would have the resources to do this - I hope they give it a shot.
Having said that, I bet WP7 will be in the mix if only to convince the market that there is a backup plan.
An Android-based Nokia could come with improvements in the phone features that make it feel like a Nokia, so that existing Nokia customers who are considering jumping ship to the Android of the week will be more comfortable sticking with Nokia.
This is where I went wrong; Elop was able to negotiate an exemption for Nokia.
It is far more easier to have Meego adopt an Android personality, since they're the same kernel inside. They could add Nokia flavor on top.
The far more important decision is positioning; they would've to leave the low-end phone market to chinese, and focus on the midrange.
b) having an OS team has turned into a liability for Nokia. CEOs normally don't care about 'gutting' workforces. In fact, I predict that Elop will cut the 'deadwood' of the old company as soon as he announces whatever on Friday.
c) (edit) Elop has to pay attention to Oracle having sued Google over Java in Android.
No, this is Microsoft establishing a brand in the phone space via take-over of Nokia. Watch and see.
I really hope Nokia doesn't follow the SGI way.
edit: just thought of this... maybe MS will convince Nokia to sue Google?