I think Photoshop, like Windows, is a beneficiary of piracy in this respect: if there were no way to get Photoshop for less than $999, there would be a lot more people using alternatives for a lot of niches where Photoshop isn't absolutely necessary. But students, people starting out, small-time freelancers, and even some random home users editing their Christmas photos just pirate Photoshop. Although, Paint.NET is gaining some market share in the home-user category.
Hats off to the Gimp development team for pulling off so many features and above all having an open-source product out there. But the problem is PhotoShop has set the expectations way too high. And I'm afraid, a non-commercial product will never be able reach that level.
But for end-user applications where you pay for the competition and where the typical end-users are not developers, or similar, (e.g. MS Office, PaintShop, most games) then FOSS versions seem rather poor by comparison.
IMO a good example of a software which does its tasks very well (I'm no (digital) painter, but I've heard about graphic artists seriously thinking about switching to it... if it only had a Mac version...).
http://en.wikipedia.org/wiki/Blender_(software)#Development
There can't be a huge amount of the original source left, surely?