You make a good argument that follows logically from your initial assumption - that "clearly some people are willing to pay money for inferior products." So I'll just challenge that assumption ;-) By and large, I think you and the OP are defining inferior products as synonymous with less fully featured products. But it's not that simple (witness the iPhone, still lacking cut & paste).

For example, compare Highrise with Salesforce. My company (a 50 person consulting firm) is moving away from SF to HR right now, even though SF has many, many more features. Why? Because HR has all of the features we need, and most of the features we like (but don't absolutely require). And we are much, much more productive when using HR. It's easier to use. I don't have to think much when filling in information. The reports take me about 5 seconds to read and comprehend. This time savings is very valuable to me and my company - I've got better things to do than think about how to use a CRM application. The features Salesforce possesses that HR lacks, by contrast, don't have any value.

You'll get it if you just look at things through a slightly different lens. You might be getting tripped up by the confusion of effort and size with value. Value is what software has to a customer - effort is the cost software has to developers. And size is just a number. It would be nice if these three number always correlated. But unfortunately, that isn't the case.