[ProDigit]

Sony is known to at times sell items with a slight loss at initial launchday, but after a few months they start making profit already due to more optimized lines of production, resource availability, and cheaper resources.
They sold the PRS-505 for 299 2 years ago. By last year they where making reasonable good profits from the device!
Flash prices have dropped enormously. E-ink prices have dropped too!
The nook has a plastic casing which makes it cheaper than the PRS-505 which has a metal casing.

But the Nook must be manufactured in Asia! There's no other way that this device can be manufactured at that price!
If so, you'd essentially be paying only $15 extra for the installation, software support and hardware of the wifi and 3G.
The flash prices of 2GB today are lower than the flashprices of 512MB 2 years ago!
Not only that, but flash memory is also made at a lower die, which means it's smaller, runs cooler, consumes less energy, runs faster, and costs less to manufacture!
(That is why CPU's and GPU's can always stay at around the same price; because they use the same amount of resources, only can create more transistors per SQ inch than before was possible).

A little LED screen on the bottom costs very little; the Android OS is a very functional OS (originally meant for advanced cell phones), and it is also a very cheap alternative (if not free, because Linux is most of the time under a "free to use and free to modify" licence) to creating an OS from the ground up!

I think the price for the Nook is a very affordable price, probably the cheapest one can make the device. I don't think it's sold with loss, but rather with near to zero profit, hoping to earn bucks by selling "en masse" (in large quantities), and selling at the same price 6months from here when the price of resources will have dropped.

The only 2 flaws I found so far is their lack of open format support, and that they only have a 6" e-ink.
The device itself looks very nice, but in essence functions the same as the Kindle or Sony Reader (with the exception of the LED strip screen on the bottom).
Meaning, books that are hard to read on the Kindle or Sony reader, will be hard to read here as well.

This device at 9" (or a tablet PC (touch screen) with PixelQi's screen,and a 1024x720/1280x768 of min. resolution) would probably be the best of both worlds!