No, you couldn't be more wrong -- Apple's last reported quarter profit was $13.06 billion profit from $46.33 billion revenue:

Apple Reports First Quarter Results
Highest Quarterly Revenue and Earnings Ever

All-Time Record iPhone, iPad and Mac Sales

CUPERTINO, California—January 24, 2012—Apple® today announced financial results for its fiscal 2012 first quarter which spanned 14 weeks and ended December 31, 2011. The Company posted record quarterly revenue of $46.33 billion and record quarterly net profit of $13.06 billion, or $13.87 per diluted share. These results compare to revenue of $26.74 billion and net quarterly profit of $6 billion, or $6.43 per diluted share, in the year-ago quarter. Gross margin was 44.7 percent compared to 38.5 percent in the year-ago quarter. International sales accounted for 58 percent of the quarter’s revenue.

http://www.apple.com/pr/library/2012/01/24Apple-Reports-First-Quarter-Results.html

By all accounts over a million (the last number I saw is 1.5m) real iPhones are in use in China, so chances are, yes, they are real.

To the person claiming that the grey market iPhones would be cheaper: if the source is HK, there they sell for 800USD -- then you need to pay the middle man and retailer on top of that. Presumably the official mainland phone will get carrier subsidy -- so yes they will be much cheaper, and that is the point...

I continue to be mystified as to why anyone would seriously consider the Pre over the new iPhone. The iPhone 3.0 http://daringfireball.net/2009/05/the_next_iphone will have twice or four times the capacity as the Pre for the same price (depending on how you wish to count Palm's rebate from the $299 upfront price). The iPhone has a thriving developer community that the will only expand when the iTablet finally gets released, and is unlikely to be duplicated by Palm, even if they stay ion business, which is far from a given.

And finally, the iPhone works worldwide, while the CDMA Pre is a US/Canada only device. That in and of itself decides the choice for me.

Dictionaries are a whole excellent App category that exists on the iPhone, and can be supremely useful when traveling. Microsoft is eliminating them for no discernible reason. Yeah, the MS App store is going to be a HUGE success. Good luck with that.

Some of your points are right -- however:
Upscaling -- you obviously have never seen an excellent upscaling player in action, from a top notch DVD transfer (progressive scan Criterion DVDs, WB, Sony Superbit, etc.) The results looked way better to my eyes than the Blu-ray demos at Circuit City (yes, I know their HDTVs aren't properly calibrated -- but do you think Joe Average consumer will calibrate theirs?)

Downloads iTunes/AppleTV have 720P rentals right now. Considering there are way more "HDTVs" out there with resolutions of 720P or lower (as opposed to 1080P), quality is not going to be much of an issue for downloads.

Player pricesSure I paid ~ $300 for my DVD player as an early adopter (and paid way more for a top notch upscaling/SACD/etc. player years later), but most consumers see $50 DVD player & $400+ Blu-ray. Quality, shmolity, they buy the $50 gizmo, end of discussion. It's not like there were a ton of $50 LaserDisc players when DVD Players were expensive -- consumers back then didn't have a choice -- now they do.