Suresh, the power of 2 limitation was built into OpenGL back in the (very) early days of computer graphics (before affordable hardware acceleration), and it was done for performance reasons. Low-level rendering code gets a decent performance boost when it can be hard-coded for power-of-two textures. Even in modern GPU's, POT textures are faster than NPOT textures, but the speed difference is much smaller than it used to be (though it may still be noticeable on many ES devices).
GuyNoir, what you should do is build a texture atlas. I just solved this problem myself this past weekend for my own Android game. I created a class called TextureAtlas, and its constructor calls glTexImage2D() to create a large texture of any size I choose (passing null for the pixel values). Then I can call add(id, bitmap), which calls glTexSubImage2D(), repeatedly to pack in the smaller images. The TextureAtlas class tracks the used and free space within the larger texture and the rectangles each bitmap is stored in. Then the rendering code can call get(id) to get the rectangle for an image within the atlas (which it can then convert to texture coordinates).
Side note #1: Choosing the best way to pack in various texture sizes is NOT a trivial task. I chose to start with simple logic in the TextureAtlas class (think typewriter + carriage return + line feed) and make sure I load the images in the best order to take advantage of that logic. In my case, that was to start with the smallest square-ish images and work my way up to the medium square-ish images. Then I load any short+wide images, force a CR+LF, and then load any tall+skinny images. I load the largest square-ish images last.
Side note #2: If you need multiple texture atlases, try to group images inside each that will be rendered together to minimize the number of times you need to switch textures (which can kill performance). For example, in my Android game I put all the static game board elements into one atlas and all the frames of various animation effects in a second atlas. That way I can bind atlas #1 and draw everything on the game board, then I can bind atlas #2 and draw all the special effects on top of it. Two texture selects per frame is very efficient.
Side note #3: If you need repeating/mirroring textures, they need to go into their own textures, and you need to scale them (not add black pixels to fill in the edges).