[Steve’s note: This is another one of those multi-part things. If I didn’t split it, this would be a 1,500 word essay. (My students should take note of that length, by the way.) I suspect that most people would rather read 400-500 words a day from me than one big post. Let me know if that’s not the case.]
One of the most common fallacies I see around e-book pricing is when people talk about “how much cheaper they are to produce”. The mistake is pretty simple: they’re forgetting fixed costs and cost-of-entry. 
Sure, e-books (or any digital products, really) have a low per-unit cost. The incremental cost for each additional unit sold is extremely low – you do it all the time when you copy files on your computer. That’s what forms the basis of the bad argument that e-books should be inherently inexpensive.
The argument falls apart because it does not count the fixed costs one must have in order to create any book. There is the author, the copyeditors, the layout designers, the cover (and sometimes interior) illustrators, promotional staff, and basic software costs (or the tech people to manually convert an RTF or DOC file into the various file formats). Each of those people need wages for their work and a provided location to do that work.  You are also paying a premium (“rent” in economic terms) for the expertise of marketing, layout, art, and editing professionals.
You can do this all by yourself – but then you still have the cost of your time and energy of gaining expertise in all of those fields. If you’re not factoring this into your product’s price, then you’re cheating yourself. 
There are problems with the current big publishing model. Mike Stackpole’s pointed out (correctly) that publishers in NYC and other expensive locales could lower their fixed costs by moving to, say, Dayton. (He’s got quite a few other worthwhile comments about fixed costs there too.) The actual processing of a manuscript is still primarily (and unnecessarily) dictated by a workflow that centered around printing presses. But figuring those things out are tweaks to the system; they can’t completely transform it. The arguments for extremely cheap e-books have fundamental problems that we’ll discuss in depth tomorrow.
 You may know them as different names; that’s cool.
 If they do it at home, then that should be factored into their wages.
 If you would have to pay someone else to do it, then you should pay yourself if you do it.