Agreed. Intel makes motherboards too - huge income there. Remember that Intel has so many different product lines, some which are magnificently expensive and profitable (Itanium anyone? yes, they still have clients for those) so the can afford to cut CPU prices to stay competitive with AMD. Yes, AMD has other products too, but nowhere near as many as Intel.
I don't have any links handy, but I remember reading that AMD was outselling Intel in the desktop market before Core 2 Duo was launched.
This is the sad part. Great as the Core 2 architecture is, the current Xeons are still no match for the Opterons. Yes, I know benchmarks show the Xeons are good, but benchmarks only go so far. I tend to put more stock in what I see from my company's 20,000+ servers. When it comes to servers that have to do some serious multitasking, not even the 8-core Xeon servers can keep up and deal with as much load as the 4-core Opterons.