They don't manufacture them anymore, but they do sell leftover stock as refurbs (http://store.apple.com/us/browse/home/specialdeals/ipad). The only first generation model they currently have is a 64 GB WiFi going for $499, or $200 off of original retail.

I don't see them firing up iPad 1 production in order to hit the $299 price point, but I can see them keeping the iPad 2 around at $299 when the iPad 4 hits, similar to the current 3GS/4/4S phone lineup. The economies of scale of extending a year-long manufacturing cycle to three years is too great to be ignored and it gives Apple the added benefit of being able to hit lower prices without sacrificing the quality of their product.

You're correct. Edited.