Margin in the low end comes from numbers. Quite right though, it's likely lower per unit than on higher end stuff though.
I'd still think they'd ALMOST rather have that market (it matches their approach in GPU - hold the mid-range, where possible and win on price/performance).
In the low end/high volume market you've got your name on vastly more inventory which ends up in front of vastly more consumers, many of who will eventually move on/up from the basic machine they bought.
It's absolutely a key market and you're absolutely right on the mountain they have to climb there. At least this time Intel can't be quite so obvious with bribes and other underhand stuff. It would appear they aren't able to compete again (fairly at least) with what's due so... I guess we'll see.
The 3200, 3400 and 3600 "G" parts look pretty decent as the leaks go though.