The success of the iPod and the Flip Video camera seems to demonstrate that mainstream consumers prefer usability to capability.
The iPod wasn't the most capable MP3 player when it came out. But Flip Video is an even more dramatic example. An unknown company came out of nowhere and captured 13% of the video camera market in 6 months. And they were competing against Sony and Canon and Panasonic, some big, well established players. The first Flip had 6 buttons and no onscreen menus. Just 7 features (one button handled zoom while recording and volume during playback). The competition had at least twice as many features.
The long tail of what a computer can do is infinitely longer than the long tail of features on a camera. Maybe you're an architect and use CAD software, maybe you're a composer and need software that works with your synthesizers, maybe you're a scientist and use a bunch of customized development tools for research, maybe you play high-end video games, maybe you design playbills, maybe you're just a car enthusiast and use different CAD software from the architect I already mentioned. The list goes on.
PCs are incredibly flexible in this way. A device that can't do the one thing you need it to do won't get bought. On cameras, usually the one thing is just: take nice pictures. If the one thing you really need a PC for isn't available from the App Store, usability doesn't matter at all.
Your analysis is flawed. See below.
the reason many people thought the iPad would fail is that it's less capable than its seeming competition.
Yes, but the smart money is on the capabilities of the iPad increasing over time. (In fact, we already know this to be true.)
Also note that the consumer-relevant increase in capabilities in cars and airplanes have been quantitative in specific metrics. (More reliable, able to go farther, faster, more efficiently.) The decrease in capability for the iPad was qualitative in terms of tweak-ability, flexibility, and accommodation of user expertise. Those are not the qualities that appeal to the mainstream user.
I'm sure a lot of people complained when automatics came out, because they're less flexible. (You can't push-start them, you can't easily rock them out of ditches, and there's less flexibility in terms of using compression braking.) The flexibility isn't what consumers really cared about.
There's no wrong or right here, just facts about different market segments. They exist. Deal with it.
Are people really as foolish as you think? I don't know. I hope not.
Enthusiast cars are still based around horsepower, handling, and the "joy of the ride", whereas modern cars are using increasingly smaller yet more efficient motors that, while not as exciting, get out of your way and still get you where you need to go.
For example, I bought a Hyundai Elantra back in 2001, and part of the weird appeal to me was that unlike a Honda Civic, there wouldn't be anyone interested in modifying something as pedestrian as an Elantra. Then I joined a Hyundai Elantra forum full of tinkerers - who take full advantage of the fact that Hyundai posts their searchable tech manuals online for free. Because of this open manual and enthusiast community surrounding a car that is unremarkable except in its longevity, I was able to change my own thermostat out, not to mention the dozens of minor suspension and interior tweaks I've made.
It's not that there's less joy in the ride, it's just a different kind of joy.
Making suspension and interior tweaks are not necessary for piloting your vehicle. Unfortunately, Windows Update and some level of technical sophistication is necessary for running the modern PC. You're arguing against your own point—you don't need technical expertise in any possible way to run and maintain your Hyundai. iPad is arguably one of the first computers to adopt this model.
The single purpose served by a computer is so abstract that it's not even worth mentioning here. Practically, computers serve hundreds of different purposes, and that is why the analogy fails.
Regardless, I think the analogy still makes sense.
The argument is that usability matters more than capability and that's why the iPad will ultimately win the mainstream. In mainstream use, computers simply have more diverse capability than cars.
(note that this is NOT the case with mobile phones-- while mobile phones have diverse capability and people use them for lots of different things, if all you could do was make calls, send text, email, use GPS and do basic web browsing people would still buy them)
In your reply, you say "you don't need technical expertise in any possible way to run and maintain your Hyundai" - given that I take my car to a garage for maintenance and oil changes, that's not at all true.
A bad analogy is like a fish.