Ferrari, I have to correct you on the contents being $25.
Modern electronics is largely software, and software is not free. Perhaps the BOM for the hardware is $25, but it's evident to me that a significant effort went into the software both on the ipod and on the Mac/PC platforms, and in the itunes website. A large part of apples' success is because it all "just works". Many of their competitors sell nice products, but getting them to work is a nightmare. Do you think they should give away their software ?
And, last, if people felt it did not represent value they would not buy it. I think that BMWs represent terrible value in a car, and I prefer a Toyota. Does that make all BMW drivers dumb ? No, they just have different interests and priorities to me.