Not really. In absolute terms, you are getting a top-tier smartphone for the price of a mid-range device. The cost is a bargain, both absolutely and relatively. Overtly penny-pinching on something that is already discounted, and using it as a deal breaker, is rather unfair towards the product. If your budget only allows the base cost of the device- then perhaps a cheaper option should be considered.
Getting a top-tier smartphone for the price of a mid-range is not looking at it absolutely, but rather relatively (when looking at something relatively, you compare it against what you expect the norm to be). I definitely don't discount that it's a great price.
Looking at it relatively, you take out the actual range of the phone, you only look at the price. So if your budget is $400, then great, it's in the budget, if not ... too bad.
Keep in mind, I have NEVER paid more than R2k for a phone in my life

... I have my S3 thanks to Vodacom, and S2 was from a competition. So for me, even $399 is a big step in purchasing a phone.
I never said anything about the product itself ... I also agree it's a lot for your buck. Being strict with your pennies is not unfair to the product, well depending how you look at it. But usually, it's simply because you have a budget, and has nothing to do with the product.
Your last sentence is the one that makes most sense, regarding buying something within your budget. In fact, that is the reason we have so much debt today:
I go buy a Honda for R300k. But wait, there is a special on the BMW 320i for only R350k instead of R400k, it's only R50k more and it's a BMW 320i! Ok, I'll get that. Wait a second, I can get a Merc C200 for R380k instead of R420k, that's only R30k! Ok, I'll get that. Oh snap, there is a special today on the Merc C250CDI with AMG Styling. It's only R400k instead of R500k ... a mere R20k more than the C200 ... today only, wow, what a saving ... 20%, that's so cheap! I'm definitely taking that!
Suddenly, I've spent R100k more than my budget allowed, and I rationalized my decision based on the fact the car is selling way below what it's usually worth, and with all the bells and whistles, not to mention, I slowly jumped in price.
So I completely agree with you, if your budget only allows less, then get less. It won't kill me.
Except that in this instance, you would be buying something you need (which also happens to be a top of the line product), for a clearance sale price.
Again, define need. I need a phone with 3G and smart phone capability. Again the Lumia 520 works if there is an affordable non network locked version. Although, I can get a T-mobile version, I will be on the network with the phone long enough to get an unlock code for the purposes of leaving the US per their terms and conditions.
However, I
WANT a nexus device, because of the frequent updates, etc.
But I'm on a very strict budget for the coming months as I'm saving money for a permanent move to Aus when I get back from the US (provided I don't stay in the US). Not to mention, when I'm done working at the end of April, I will be travelling the US for 2 months, and want the maximum available spending budget so I can do all the stuff I want to do
Also, it just sounds a lot better from a psychological standpoint (to myself) that I got the phone for three thousand and something Rand

... The inner Jew will feel more pleased or something
So I think I will rather then just go for the 16GB model. In any case, I don't copy music to my phone anymore, I stream everything. That way I can get it for sub $400. Though I've heard the battery in this model is smaller, if so, that may be an issue for me then.
Please also keep in mind I have a unusually strong discipline with money (Don't forget I'm also a bean counter

). I'm not stingy, I do spend ... a lot, but I stick to preplanned budgets. I still live to enjoy life though, and it's because I'm strict on budget that I can do so. To give you an idea, I've set aside a budget of R50k for spending money in the US for the 2 months of travel (keep in mind my internal flights will be ALL covered by miles, so no flight costs incurred). This phone comes out of that budget, so the more I spend, the less travel budget I have.