Historically, low-end parts have managed to kill high-end parts by selling in larger volumes and amortizing their fixed costs over a larger base. ARM sells in huge volumes, but how is selling $1 embedded chips going to help them amortize the cost of their high end stuff? Decades ago, doing that sort of thing would helped Intel fill up their idle fab time while competitors like DEC struggled to pay for their fabs, but ARM has never owned its own fabs, and selling completely different low-end parts doesn't really help amortize the cost of masks, post-silicon debug, etc. of their high end parts.
I'm also skeptical that ARM will retain its power:performance advantage if it tries to scale up performance to match low-end mainstream Intel parts (e.g., core i3). The main reason ARM has better performance:power is that there are diminishing returns to performance. Another is that Atom is a new product line, and Intel doesn't have much experience trying to optimize for low-end parts. That won't be true going forward. Yet another transient advantage ARM has is that Intel uses a high performance process, but they've said that they're going to have both a high performance and a power optimized process in the future. If anything, Intel's process wizardry should give them an advantage there, once they decide to push it. What other inherent advantages does ARM have over x86? It's a PITA to decode x86 instructions, but the ARM instruction set isn't very nice, either (e.g., look at how they ran out of opcode space, and overlayed some of their "new" NEON instructions on top of existing instructions by using unused condition codes for existing opcodes).
I wouldn't bet against ARM but, if they win, it will be because of the usual reasons: better marketing, better business practices, and better engineering, not because there's some inherent advantage that lets them be cheaper than Intel. And, by the way, the configurability advantage you mention actually hurts them in terms of cost, by increasing the fixed cost per part.