Sure, give it 4gb of ram, 320gb hard drive, sdxc and 512mb video ram..
$199 sounds about right..
This is the same price range as netbooks/laptops.. could M/S deliver a touchscreen tablet along those lines? Sure... 16gb onboard and a sdxc slot will do nicely.. I bet the margins on low end laptops & netbooks aren't that great either, but LOSE money? Maybe a little at first, but by no means taking a bath.. afterall, they want to profit from the appstore ecosystem too..
Anroid found it's sweet spot.. most apps that run on 3.2 generally run on 2.2...
4.0 changes everything and this is the point of departure which means older and/or unsupported tablets will see themselves being left behind on apps & corresponding hardware/drivers upgrades. These upgrades will enable usb ports to finally support more hardware, which is awesome. Haven't you always wanted to connect an external WIFI dongle, printer, sd card readers, etc. ?