This is a strength of Android - that it can be on inexpensive devices for the billions of potential users out there.
Remember their original goal for the iPhone? Capture one percent of the market. Their products have always catered to a niche, only with the iPod did they ever start seeing mainstream popularity.
I don't think it would hurt Apple to fall back to being a niche in the current computing landscape — they are just amassing money otherwise — their company does not seem designed to actually grow with the money they earn.
iOS can be on inexpensive devices, too; Apple just chooses not to. Now, maybe that's a good decision, and maybe it's not—but it's a decision that they're making, not a corner they've been backed into.
But maybe ads to people without money will be enough to finance software? I think before that happens, good cheap screens (maybe not IPS) and lowering electronic prices will push the prices for usable xPAd down anyway -- what seems to happen for phones now. Then everything in the xPad market changes (just don't ask me how).