First: this is the most concise, reasonable and logical case for an xMac that I've read in hundreds of posts on Ars, or the various sub-iterations that pop up elsewhere on Apple forums. You have certainly given me something to mull over. Thank you.
(Calmness, logic and reason, all in one post. Are you sure you meant for this to be seen on the internet?)
Aw, crap, maybe I should've saved it for my newspaper column!

Thanks for the compliment!

I try to avoid the typical whining and yelling that the majority of posters like to utilize...
I'm not necessarily sure that Apple is ready to, or even should, abandon the Mini. The sub-£500 starting price is a sweet spot to entice switchers and I await any kind of evidence to support the "Mini isn't selling" cries from certain quarters.
You know, you have a good point. I've never believed the claims that the Mini wasn't selling, as it seems to be quite popular, most notably, with hobbyists, including myself. I don't know if you've noticed, but on Apple's Mini page, Apple showcases what these hobbyists (and organizations) have done with their Minis. I think Apple is pretty proud of the Mini, whether it's a relevant piece in their product line or not. I can't see them slashing it anytime soon, which makes an xMac a little less likely, sadly.
It seems to me that the natural habitat for the xMac exists between the iMac and the MacPro but - as I noted in another thread - the difference in price between the top of the iMac range and the bottom of the MacPro range is only waffer-theen. </Mr Creosote>
This suggests that one or both of these products would be vulnerable to loss of sales to an xMac, most likely the MacPro since this, too, is headless and offers expandability.
While I understand your argument, I disagree with the implication that price-overlap means functionality overlap. Take the iPod Classic and iPod Touch. Overlapping price, both PMPs, two completely different markets.
Assuming the "iMac < xMac < Mac Pro" lineup, I would fully expect some price overlap on the fringes of the xMac... i.e. a high-end iMac at $1,500 (like the olden days), and a low-end xMac at $1,300 or so. Meanwhile, the xMac could go up to $2,299 and the Mac Pro *SHOULD* (at current spec.) start at no more than $1,999 (but that's another story altogether).
Then we'd have three very, very clear-cut product segments with just a smidgen of price/performance overlap... as it should be. iMac for basic users thru light prosumers; xMac for advanced beginners, through advanced prosumers; Mac Pro for advanced prosumers through professional.
I really don't think the Mac Pro would suffer that much loss from the addition of an xMac. It's very much a niche PC to begin with, which attracts mostly pros and perhaps a few high-end (and affluent) prosumers. The only ones I see being swayed by an xMac are the latter, which seems, to me, to be the minority of an already small target market. The pros, on the other hand, will continue to flock to the Mac Pro, whether there's an xMac or not. I think, currently, most mainstream prosumers force themselves to choose between an exspensive iMac, or bi-annual Mac Minis (

) but of course I'm not sure for certain. This is all just a hypothesis. Please feel free to disagree.
Following your argument, and some of the numbers in your linked post, it would seem eminently possible for Apple to nudge the iMac prices downwards by, say, ~£200 across the range and open up enough space to put a prosumer tower in the space.
This would put the bottom end iMac at a very reasonable £599, still distinguished from the Mini at £499 (although a smaller price cut here, perhaps £100, would help the differentiation) but allow for a headless tower at the £1500 mark.
Apple's margins are more than healthy enough to absorb a cut of this size.
I agree, this is definitely possible, ESPECIALLY the Mac Mini price cut, perhaps if only £50/$100. That thing is over-priced anyway. (It's sad, really... who still sells DVD-ROM drives, Apple?) In order to keep selling at its current price-points the Mini demands an upgrade! Or a downgrade in price, you pick, Apple.
That was a miniature rant, yes I know, but the point remains that there's room to slide the Mini down in price, and the iMac down in both price and performance. If the product line is arranged correctly, I could certainly see all four desktops coexisting, at least at present, though as you suggested earlier, it would complicate the matrix.
My only real concern at this point (and, as I said, you've given me food for thought so I may well change my mind) is that I still can't believe that Apple are ignorant of this issue; I believe that they have looked at it and that they, therefore, know something that we don't ...
It is my belief that Apple chooses to remain ignorant about certain issues. The things they do produce are always stellar products, so I'm not complaining too much, but I often find myself picking between two products that don't really suit me as ideally as they could. Maybe I'm just an oddball and don't fit neatly into the "typical" market segments, but all this outcry for an xMac is making me think otherwise. In fact, I think xMac outcry is at an all-time high. Maybe Apple is starting to realize they pushed the Mac Pro a little too far out of range for us prosumers... and that a larger display & HDD in the iMac isn't going to satisfy us...
...or maybe they're doing these things on purpose. Ever since the G5, Apple has been pushing the Pro model higher and higher, while they've been pushing the iMac lower and lower, giving the high-end iMac "gap-plugging" features until there's enough separation for another product line.
This happens to be my favorite theory...
-Clive