I'm going to disagree slightly here. If you're comparing ISO to ISO, yes. But it's about more than just ISO. Having used a Rebel XT and a Rebel XS side by side, the XT is still more capable camera as far as features and the build quality is noticeably better than the XS. Whether or not someone finds a stripped down camera lacking is really a matter of what an individual photographer needs from a camera. But no, I don't think most casual photographers will find the bare bones entry level cameras lacking at all. They have all that you need to take control of the shot.
Technology has gotten cheaper. And yet the prices for the line are still in the same ballpark. My point was that when the makers decided to court the casual photographers they released a cheaper camera rather than lower prices on what they already had. It was a calculated move to broaden their consumer base.
Yes, I don't think we are saying anything all too different.
Though maybe I'm wrong, I think a lot of the price differential between "levels" is artificial. Sellers know that there are always buyers who will want the "most expensive" model, so they offer a more expensive model. There are also professionals who make a living with it, who can be forced to shell out extra bucks for just slight differences, as even a slight difference can be meaningful at that level. Often, the more expensive model isn't even more expensive to produce than the cheaper model. iPhones as an example -- I'm pretty sure the production price difference between the 16gb iPhone and 64gb iPhone is only about $30. Yet Apple charges a $200 premium. I live in an affluent area, and I know many people who will never buy anything less than the most expensive option, because they assume it must be the best.
I can't talk very knowledgeably about Nikon and Canon. I was a Minolta shooter, which led me to the Sony line.
So I'm pretty sure I paid about $1,000 for the A100 back in 2006. I just paid $400 for a A55. The A55 is superior to the much more expensive A100 in just about every way-- ISO of 1600 vs 12,800. CCD sensor vs CMOS. Contract detection vs. phase detection. 16mp vs 10 mp. Much higher noise and IQ ratings. The only thing "inferior" about the A55 is that it is indeed more plasticky than the A100, but even this isn't necessarily a bad thing, as it results in a lighter camera.
In the Sony line, the flagship crop dSLR is the A77. The differences between the $1,000+ A77, and my $400 A55?
-- Weather sealing. Which is nice. But can also often be partially achieved with a plastic bag.
-- 12fps vs 10fps -- I doubt it costs them any more to enable 12 vs 10 fps. They probably intentionally hamper the software on the cheaper model.
--24mp vs 16mp -- Not really going to change the results, unless you are cropping.
--ISO of 16,000 vs 12,800 -- Less than 1 f-stop.
-- And according to 3rd party tests, very very slight improvements in noise, IQ, etc. Very small differences. If I was a professional or swimming in money, I might buy the flagship model, but I don't see the differences as being worth the price otherwise.
So first off-- the economy model is still overall superior to the "top of the line" from just a few years ago. But secondly, in the hands of the same shooter, and with the same lenses, the flagship model isn't going to vastly out perform the economy model.
So in terms of pure branding, they camera makers continue to demand a premium price for the flagship models. But the economy models aren't significantly lesser models. They are often just slightly scaled down models, with a minimum of real differences, allowing the seller to target different price points at the same time.
I know other brands less well, but from my limited experience.... Looking at the Nikon D5100 vs the D7000.... Most of the differences are quite tiny, so is the D7000 twice as good as the D5100, as suggested by being twice the price? Or is it just incrementally better? Just enough, to create a rationale for differential pricing.
Um, ok. Not that there's anything wrong with shooting on Auto necessarily, it's just that I was surprised to hear this from someone who claimed to be a "professional", and it made me realize how individual this is for everyone, regardless of what type of camera they use or how long they've been shooting, etc. 
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