maybe it's less the diplomacy and more that they were sitting on a pile of crusty patents instead of building the iphone
This was a huge missed opportunity for Palm. WebOS was pretty good at that time. They needed more software for it - this is a perpetual problem for most platforms at launch. Seed the market with good hardware, invest in developers, and let it churn for more than 2 months before killing the whole thing.
And yes, then they were being dumped at fire sell prices of $99/149$ depending up the configuration.