There was an issue with android on older version of the OS (supposed to be older than 2.0 but there are reports of people with the problem on newer versions, like 2.1 and 2.2) the problem is that the native side of the android os floods the android application with touch events, and that is why you see the game slow down, the touch handling is taking a lot of your cpu.
In newer versions this is patched and is not an issue, but on older versions the recommended fix (not a total/real fix but at least it makes it better) is to add a sleep() call in your input handling method to keep the native code from calling the input handler so much.
Since you are using libgdx you can use the class com.badlogic.gdx.backends.android.AndroidApplicationConfiguration when you create your android app and set the parameter touchSleepTime on it to 16 like it is recommended in the javadocs for the class.
hope it helps, and I would love to know if it does fix it for you, and what version of the android OS you have.
EDIT: this is an issue about this on the android project - http://code.google.com/p/android/issues/detail?id=7836