I get the feeling the reason for the Tarsnap price is simply a lack of scale and bootstrap nature of it. (i.e. there isn't a VC feeding money into hosting costs to drive the costs down to grow the userbase). The cost seems fair, but noncompetitive against other vendors on most easy to find quantitative measures (Cost, features, SLAs, locations, etc).

However I do think there is value in Tarsnap if security is really that important. Colin is really switched on, and I trust both the service, and if anything happened, he would deal with it quickly and professionally. If I had the kind of profile that meant I needed to protect myself against determined attackers, then tarsnap would be a no-brainer for me.