That's a very solid argument, and it's very similar to those I have heard before, and I still acknowledge that the arguments themselves are very sensible; however, I still just can't buy it, I'm sorry. It's similar to those who, in the face of personal experience and very reasonable explanations, just cannot accept the idea of the existence of God; no matter what you say, it just doesn't register with them (not trying to change the topic here, just making a comparison). I'm just not seeing it, and I have some development and support experience myself, so I'm not shooting totally in the dark here. Still, I admit I really don't know fully how it breaks down, but I'm not buying the thin margins argument at all.
Where I got that price from was a software download site I visit often, and the person who had listed those prices did say that they had not been confirmed (or even commented on) by Microsoft, so they are entirely rumor. What I heard was:

Home Basic - $256 USD
Home Premium - $511 USD
Vista Ultimate - $639 USD
Vista Business - $840 USD
Vista Enterprise - $1033 USD

Those prices are entirely out of line, in my opinion. Now, I'm not sure if the figures you used are estimates, and if they are, how accurate and realistic they are, but I'm not going to believe that it costs 4 times as much to make, market, distribute and support the Enterprise product as it does to make the Home Basic version! If those numbers are anywhere close to accurate, then they'd be losing money on the upgrade versions (surely it doesn't cost any LESS to make the upgrade version), and the vast majority of sales are very likely to be upgrades, right? Adobe, for example, sells Photoshop for $650, unless you're upgrading, in which case you get the exact same product for $170. Come on, how much does it cost to produce if they can stay in business (and thrive mightily, I might add) selling the majority of copies of that product for $170 dollars if it REALLY costs 90% of that $650 to produce it? The same math would have to apply to Microsoft; if it costs $450 to produce the Home Premium version, for example, they'd lose money selling the upgrade for $300 (which would probably be in the neighborhood of what the upgrade would cost).
Beyond speculation, I would think it should be relatively easy to check if Microsoft's profit margin, overall and per-product, is really 10%, which might be true, but I doubt it. Pennies a day you say? $500 over five years would be about three pennies a day. How about a several hundred million people paying three pennies a day into your coffers...that's a very, very tidy sum!

If you don't feel Windows is worth 3 pennies a day to you, don't whine but choose a cheaper alternative.
This is a free market economy where you have a lot of choice after all.

To many people it's well worth that, they quickly recover it in increased productivity or because they save a lot of frustration and thus get increased enjoyment from their private time.

Yes, upgrades are less expensive.
That's a customer incentive program, rewarding returning customers for their loyalty. It's not dissimilar to stores giving discounts to customers holding loyalty cards, those goods cost the store the same amount to purchase too.
And indeed the Home edition doesn't cost that much less to produce than does the Enterprise edition, maybe, IF you assume both sell the same number of units.
But they won't of course. The home edition is likely to outsell the enterprise edition by an order of magnitude, so the development cost is spread over a far larger number of units, reducing unit price faster than the development cost decreases.

Your fundamentally flawed arguments show that you lack a basic understanding not just of the software development process but even simple macro- and microeconomics.

Oh, now come the personal attacks. Why? Any why, just because I happen to have an opinion about something, that happens to differ from yours, do you have to call it whining? I'm not whining. This is why I don't like discussions with you; you are intelligent and kind for a while, then you resort to namecalling and personal attacks.
A company that loses money on a product in order to provide "customer incentives" won't be in business very long. Your point was that the retail prices of products yieded a 10% profit, you did not consider upgrade discounts in your figuring, now you're talking about spreading costs over other versions. In the example I gave about Photoshop, there are no versions over which to spread these losses. How can Adobe sell a $585 product (assuming 10% profit) for $170 and stay in business? They can't. Economics. macro/micro or whatever else, MUST conform to the laws of simple math. I admitted I wasn't sure how it all broke down, but you have not really answered the question of how a company can do this. But it's OK, you don't really have to. I happen to have a fondness for debating things, but I find it very distasteful when it gets to the place you so frequently go, so with all due respect, I will consider it a lesson learned, I apologize for even expressing an opinion, and I will have nothing further to say to you. I'm not angry, mind you, I just don't like this kind of attitude.

No, I disagree jwenting.

Toulinwoek has a completely legit argument.