I briefly tried this too, data mining thousands of high-paying keywords and looking for available exact match domains, so I didn't even have to worry about SEO to get to #1.

I still couldn't make this profitable, even to cover domain/hosting costs, much less my own time put into the project.

But you or I are not Demand Media, and that's why we're not making the big bucks. The fact remains that they are INCREDIBLY good at acquiring and monetizing low-quality traffic.

This has less to do with their SEO skills and more with the fact that, for example, they can produce content that will hit the Digg front page 80% of the time.