In your case the attribute android:configChanges="orientation|screenSize|keyboardHidden"should go to the first <activity> tag and not the <application> tag.
For the other people having similar issues simply add screenSize toandroid:configChanges="orientation|keyboardHidden" or change theandroid:minSdkVersion attribute to 12 or lower.
A more detailed explanation of this behavior can be found here:http://groups.google.com/group/phonegap/msg/c771fffc4dd9daaf