The guy who invented the Raspberry Pi came to visit and I got to have lunch with him.  Some surprising stuff I learned:

• He's a technical director at a company where his project started off as discouraged and has now reached the status of being his full time job.

• About a million units a year (their current volume) is approximately the lowest volume they would want to support.  But it is in the range they would want to support.

• The Raspberry Pi is not just a custom board: it's a custom chip.  This guy is the chip designer.  The way it happened was he had the idea to take their existing 3D graphics coprocessor chip and squeeze a tiny ARMv6 (ARM11) core into a space on the die that was otherwise unused.  It sounds like a 20% project, basically.  The result is a rather unusual SoC that has comparatively crappy main CPU performance (700 MHz single issue), but very very good graphics/video performance.  (The full board costs $25-$35, where the $25 model has no ethernet port.)

• He believes this tradeoff (great graphics, wimpy processor) is a good balance for a super-low-cost educational device, since students care about making cool graphics.  I think he has a point.

• There are in fact a few other manufacturers who could make devices in the same price range as Raspberry Pi, but you'd get slightly higher CPU performance with much lower graphics performance.  Nobody else bundles a high-end graphics processor into a chip in that price range.

• Someone on the Internet managed to reverse engineer their DSP and document how it works, writing a complete architecture manual for it.

• Our TV box uses the same graphics chipset: "Oh, that's the exact same graphics processor then.  We only have one graphics processor design that we use across our entire line.  I designed it."

Um.  Okay then. :)

My sister got me a Raspberry Pi for Christmas (yes, we are a geeky family) and I played with it a bit, and it definitely does playback full HD video while taking super low CPU, as long as you use the coprocessor.