I'd speculate that the target audience for this machine are kids with dated PCs and who own Ipods.
There are tonnnnns of these kids out there. Their folks may have purchased a pc years ago and a monitor is available. Kids owning the Ipod seeking a new computer now have a choice.
And the Apple is sexy, both in style and use. Expect this to be the big market for this machine.
(BTW, there are gazallions of IPODs out there).
The upcoming PS3, current hacked X-boxes, the next X-box (using the yet to be produced next generation of G chip, to be made by Motorola), any of the barebone minicube PC systems, are faster, have larger hard drives, more RAM, more video mem, more input slots, more software, more games, play Mp3's equally as well, have the similar small dimensions, are UPGRADEABLE, and cost substantially less.
The $499 Mac mini comes with a 40 GB harddrive. That's pathetic.
That's without mentioning the very cool cases available for barebone PC's with or without Windows/Linux, that can be had for as little as $400, with mouse, monitor and keyboard. (Much cooler cases for mini-Pc's and mini-ATX can be bought for $15. For ~$40,000 up front, I can have a Taiwanese firm building clones of mini IMac cases for PC's in 4 days.)
And then there's the 3 ton gorilla, Wal-Mart's barebones Linspire system.
I don't see how between now and the introduction date of PS3 or Xbox2 to market, Apple will see any market share growth, or much increased profit from this product.
The mini Mac should have been introduced 3 years ago.