Well, perhaps we'll see a stripped-down version of xoom later on. Half the memory, no 3g, single-core processor. Could reduce the price for a few hundred bucks.

EDIT: I've found one bit of news that suggests there'll be a wifi only Xoom: http://androidcommunity.com/motorola-xoom-wifi-clears-fcc-20...

Why are we not seeing it now? Motorola wants to compete with Apple but they release something that’s not really competitive.

If you have any doubts about Motorola’s intent to compete with Apple head on, here is their Super Bowl commercial: http://www.youtube.com/watch?v=09vmRWeNZSM

This video from Motorola makes their intent even clearer: http://www.youtube.com/watch?v=7vRgesYJHKo

They don’t want to target the higher end of the market, they want to obsolete the iPad. They shouldn’t be surprised when they get then criticized harshly for not delivering.

When is the market is essentially all high end (everyone wants the iPad to be the computer for the masses, but all surveys show it is a luxury item currently), I don't think targeting that the high end is a bad plan. iPod knockoffs never won despite a lower price, so why not go for good build quality at a high price?

Consumers pay about $600 on average for an iPad. If all iPads were equally popular the average would be more like $665. Apple’s most expensive iPads are not their most popular.

I do believe that only good quality tablets can compete head on with the iPad but I do also think that the price point is important. Apple has shown that it is possible to make a high quality $500 tablet.