How do I simulate packet loss on an Android device?
It is possible to set network latency and speed using the emulator control functions of the standard Android Developer tools.

If using eclipse:  Select Window\Open Perspective\DDMS
On the screen you will see a tab named "Emulator Control".  In this tab, you will find the Speed and Latency options.  The 'Telephony Settings' at the very top have speed and latency selections.

There are other ways to modify these settings (including scripting them in your emulator setup), but this is the simplest way to access the settings.