Khurt, you are presenting a good point, but are forgetting one major point (which Microsoft had figured it out LONG LONG time ago.).

$500 PC vs mac, Who is their target audiance? and what % of the market is this target audiance? Now the users are getting more savvy than they used to be 10 years ago or even 15+ years ago when Microsoft came out with their first software. Microsoft products are not cheap btw, but their advertisement and their target audiences is targeted for majority of the people who would go and buy these softwares.

Microsoft knows, they'll loose their battle with people who are really savvy, and know what will get them more for their $ in long run, (like educational, government (local and state and even country level), financial, and even small consulting companies), so what does microsoft do in case of educationl and govermental industry? It gives out softwares and hardwars (partners with Dell/HP/IBM etc if they don't have the hardwares themselves) for free or almost inexpensive than it is for normal users.

Now doing this, microsoft like any other companies, have moved their development area outside of USA (instead of saying they are outsourcing, they are now saying we can't find TOP quality Engineers in this country, so we are going to India and China to find them and hire them there.) (interesting info on CSPAN. http://12.170.145.161/Search/basic.asp?ResultStart=1&ResultCount=10&BasicQueryText=microsoft

).

After all that rambling.. the point is $500 pc is not a myth, as the saying goes "People will buy what they see", so how well do you advertise your products and make it seem like it is really user friendly?