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At least, that's who they want to buy the Kindle, since they probably are selling the hardware close to cost with the idea of making it back on the books (the razor and blade model)
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Drifting off topic a little bit - I've heard people say that the BOM (bill-of-materials, eg core cost) of the Kindles is well below $99, though I'm not sure it's quite that dramatic ( I'm an electronics engineer, I design things and have to work within some insane budgets working direct from China ).
My guess is it's costing somewhere between $60~$90 to manufacture. It
seems cheap but by the time Amazon covers all costs including returns/support/etc there's surprisingly little margin. The CPU/glue-logic/casing will be comparatively cheap but the eInk display is the costly bit. My guess is that the eInk display people are going to be trying to play hard-ball and keep the price of their display technology up as high as possible for as long as possible (who wouldn't when you know you've got Amazon buying). The developer kits for the eInk systems are about $3000~$6000 to purchase, probably giving the eInk display, which I'd then imagine the actual displays are $30~$60.
Anyhow, pulling myself back to the point, I don't think that Amazon are "raking in the cash" with the sale of the hardware and hence I support your view that they're likely working with the plan that the sale of the eBooks & services will subsidise the lack of margins.
Paul.