The most popular ARM arduino boards do NOT have any operating system (mBed and LeafLabs Maple) and operate bare-metal style like Arduino. These are growing in popularity much faster than you might think. The user experience isnt quite as smooth as Arduino, the community is smaller but growing, and the products are 30-100% more expensive, but in return you get 5 times the processing power and lots of other feature goodies.

There are some other products out there running .NET runtimes and basic real time OSs as well, but these have not really caught on.

Add an operating system into the mix, and as you said its a whole different ball game. That said, 700MHz is a lot of room to try and add a real-time Arduino style layer with access to GPIOs and such. You probably wont get 1MHz real time, but you can probably get 100KHz real time, which is fine for MOST things. Plus you get a network stack, and a display driver, etc. etc. to boot. Of course it cant be done for $25 (that is silly unless the project is nonprofit AND subsidized with charity or advertising dollars), but I would believe $70.

The software for such a device would not be anywhere near trivial to get right, but there is a neat product in there somewhere that a team of 3 or 4 could probably get going rather swiftly.

Of course, on a Maple or an FPGA you can really get crazy - with output timings accurate into the 36MHz and 150MHz range (respectively).