"But some of those Android tablets cost more than the iPad.
So cutting corners doesn't seem to significantly reduces the cost."
Don't forget also that Android tabs can do a significant bit more than a stock iPad2, without having to buy dongles. HDMI out and an SD card, to name two. Both dongles are fairly pricey for the iPad2. HDMI out I can see leaving off a tab in most uses, but the SD card is almost a necessity for content consumption (my music collection alone could easily fill an iPad2).
So, what is the cost of that ultra-cheap $500 iPad2 after the adapters, i*branded attachments, etc? Yes, the Galaxy Tab 7" is way overpriced, as is the Xoom for the most part. We'll see what Samsung delivers with their 8.9" and 10.1" models.