What about a single 4 or 6 core xeon/core i7, 4 RAM slots, 2 user upgradable drive bays in addition to the system drive, 1 empty expansion slot and a user replacable graphics card in the slot next to it for £1099?
There's a hole in their range that needs to be filled with a system like this.
There is no hole. £1099 is around $1680 right now. There is a $1699 iMac. On the UK website there are models sitting at £969 and £1225. 1 In the pricing from the Mac mini through iMac to the lower range of the Mac Pro there are no large holes. Right now the $1699 is a C2D, but not refresh it will likely get some Core i processor of some kind.
So the hole can't possibly be a pricing range hole. If talking about squeeze it between model prices inside the range that isn't really a "hole" either. It creates only slightly less buyer issues than with exact price overlaps.
If you want to ignore the iMac and say there is a "hole" between the mini and the Mac Pro. Apple didn't create that hole, you did. That only exists because you are removing the iMac out of the line up.
Apple wouldn't be gouging sales of either the iMac or Mac pro, they'd be selling the Macmini TOWER to existing mac owners who wouldn't be satisfied with the power of the mac mini for very long, don't want to go the second hand route on a mac pro and don't want a giant laptop with an external keyboard and mouse. *More importantly for Apple, they'd be catering for potential switchers who'd finally have a mac they can switch to!
Apple would be cannibalizing iMac sales. The point you make at the end of that paragraph points to exactly how that will happen.
The switcher campaign had a element of "bring your own keyboard , mouse, and monitor" and switch. So have new, overlapping in price, switch box and customer is presented with two choices if want to move to mid range mac.
1. re-use monitor and buy mini tower.
2. buy iMac ( and prehaps go two monitor)
Your assertion is that no one will pick 1 who would have a taken option 2 if that is were only option. That is extremely weak because your last point says that there should be an extremely high selection of option 1. More people choosing option 1 means less people choose option 2.
The hand waving argument is that magically other people will appear and somehow offset all of the subset of folks that were routed out of option 2 into option 1 with this pricing overlap.
Apple knows they loose some customers because don't have a mini tower. That is not an issue given the choices they have made. 90% of all personal computer buyers don't buy Macs all the time. Every day 9x as many non Macs are sold for every Mac. Not an issue if objective is to not to shrink rather that somehow re-fight the Mac vs Windows war. That war is over. The focus is not on the products they don't sell. The focus is on the ones they do. As long as the number switching in is just marginally higher than those switching out, there is no deep seated problem. Maintaining their 4-6% overall market share is sufficient to make money. The focus is on how not to shoot themselves in the foot in the market they have craved out rather than primarily focus in a contest of pulling users.
There are lots of products Apple doesn't do. They dropped out of the XRaid market. The don't do ruggedized , "toughbooks" laptops. They don't do 2U or 4U servers. They don't do sub $800 netbooks. There is no Mac with an Atom processor , etc. etc. etc. They don't do more variants than they do bring to market.
The closer to the middle of the iMac price range you put the mini-Tower the more destructive the cannibalization is likely to be. The location where would more minimize cannibalization would be at the edge of the iMac price range; not in the middle. A Mac Pro that overlapped with the $2199 CTO iMac would be much less destructive. At that price point folks are a coin flip from going higher/lower and a preference for external monitor and/or need for PCI-e slots (or don't need) can serve more as a tie breaker rather than breaking up or down in the product categories.
Long term the design objective with the iMacs is to increase the I/O so that a large fraction of those who percieve a need for PCI-e slots, don't need them anymore. Additions like USB 3.0 and eventually Light Peak will contribute to making that number go higher. It won't go down to zero but as long as it gets higher that is enough for growth.
P.S. just look at how the MBA sales rocketed down once there was a MBP 13" option. Right now Apple has a problem with how to separate the two. It is less of a problem there because the two share a high number of higher cost components including the display.