A lot of my friends have a iPhone 3 GS and they are happy with it and see no need to change. It's not the same with Android low-end models.
Please don't get me wrong I don't want to bash Android here but I want to make how smart this decision was / is. People are buying the old hardware ( which was awesome) and getting it with new the software for a good price.
Maybe I should also point out that people have also seen the same product last year and friends using it. Think about it. Would you buy a new phone which just came out as low-end model or would you buy the product from last year for a better price? Apple shows that the second choice wins.