Believe it or not Apple is not making a whole lot of money off of these things (in volume yes, but the markup on one, especially when you consider R&D, is hardly anything)
That said, the only way your gonna get it at or under $500 is the 16GB version, which is good enough for some people. There are lots of WiFi external storage devices and other storage solutions for the iPad, which is perfect for folks who aren't always on the go with their iPad (I know lots of folks who just use them at home).
Everyone is different, it's silly to determine something is a bad product because the BASE model doesn't suit your needs, that's why apple also made the 32 and 64GB models, as you can see from this thread, there are lots of folks for which 16GB was enough.