I don't disagree with you entirely, but there is no way you will get that kind of machine at that price. Look at how pathetic the mini is, and it is practically the same price as what you suggested.
That's Apple price, not bulk/oem pricing. If Apple
really wants to get numbers and start selling more systems, they have to drop their prices at least 10-15% to get closer to "the other guys".
If you go build something yourself, you could build a Core 2 Duo machine around $450-$600, and those are based on retail prices, not bulk/oem prices that Apple would get (buying parts in batches of 1,000 etc). If they release a midtower under $1000, I'm telling you...it would sell. And the price would be competitive in the grand scheme of things.
Prices are already dropping a little on cpus, and with the new Intel chips coming out for Stoakley-Seaburg next month, prices will drop even more. Case in point - the Q6600 (Quad 2.4) is around $550 right now; next month when the new chips are released, it drops to $260. $260 for a Quad 2.4!! That's insane! Not only that, you can get 4 gigs of GOOD brand name (Mushkin) DDR2 800 ram for $180 right now.
The system I was going to put together...Q6600, P35 (Stoakley-Seaburg) chipset Gigabyte mobo, 4 gigs of the aforementioned Mushkin DDR2 800 ram, EVGA GeForce 8800GTS 320meg video card, 20x LiteOn DVD burner, 22" Samsung 226BW LCD monitor, 320g SATA HD, Antec Neo430HE psu, etc...including Vista or XP runs around $1450. Half the price of a Mac Pro 2.66 [base] and much better specs (aside from the slight cpu difference).
With those things in mind...do you still think it's impossible for Apple to sell a Core 2 midtower at $799?

(Improbable, I know...)
I think in one regard, we've been (or at least
I've been) let down with the switch to Intel...Apple's pricing scheme.
