Would have been interesting if they'd discounted it to this level before canning the ecosystem. Might have given it the shot in the arm it needed?
But not only does it teach you nothing about the actual market, it actively misleads you. Even if you try to consciously remember that your popularity is illusory, that you bought that popularity - even if, like the triumphant Roman generals of old, you employ a servant to stand behind you at all times whispering: "Remember your company is mortal and these happy people are all paid shills" - psychology is psychology, and smiles are contagious, and you are going to fool yourself, and you are going to make bad decisions under the influence.
And then the paid-for popularity will warp your product, as you begin to build features based on feedback from the existing users, the ones who did not pay a fair price. These people aren't your market. But that doesn't mean you can just ignore them either, because they are in contact with your actual market, so you have to keep them happy...
He's not saying selling below cost is a discredited tactic. He's saying it's a discredited strategy. He's not saying selling below cost means there's no market. He's saying it doesn't tell you what the market is.
If you're selling cupcakes, you need to go to Groupon knowing your cupcakes are good enough, and that there's sufficient demand, to clear in the market. Then it makes sense to spend resources to promote your business so that people are aware of your cupcakes.
Groupon might be a pretty good illustration of the perils of confusing awareness marketing with demand generation.
HP's fire sale will cost them something like 100 million and it is not as popular as the iPad. Not even Apple could pull something like this off.