Xeon prices don't tend to fall at the retail level. Intel don't discount them, they just discontinue the line. So those with inventory can either clear it with a discount and lose money or hold on to them in the hopes those who have Xeon based machines will one day buy them. As most potential purchases are going to be for business the price doesn't matter so much. You can often see the same thing with original 6000 series Core 2 Duo and Core 2 quad processors too which still go for their original prices at a number of stores despite being made redundant many times.
You can buy 2.66GHz and 3.00GHz Clovertowns on eBay for $250-$400 quite often.