Think about it - since 2007 Apple have increased their active marketshare to 75 million people, from 25 million - according to the keynote.
In 2007 that meant Apple could rely on say 10 million people to buy the OS upgrade (2/5ths).
Now I'll assume that 10 million people are still on PowerPC, so we have 65m active Intel users. If 2/5 of them bought the upgrade it's 26 million copies ... but it's $29, so 4/5ths will buy it - 52 million copies.
10m * $129 = $1.29b revenue (certainly more than development costs, licensing costs, ongoing costs, and other costs of developing Leopard since Tiger)
52m * $29 = $1.508b revenue (ditto)
Apple can afford to sell the upgrade cheaper - they might say they're doing this because it is a refinement, but there are enough new features (beyond things that should have been there in the first place) to argue that Apple could have sold it for $99, or $79, or $49 ... and $49 would have sold like hotcakes too.
Basically, Apple is a hardware company, and is happy to not grossly profit from the software that enables their hardware. Getting 50m people onto Snow Leopard will be a boon for software development, and applications will move to support it and use its features very quickly.