Tony> I don't really see that MD have done anything "wrong". It's an out of the box way to get you mobile with RISC OS and for many users that's the first time it's been possible since the Acorn A4. Whether it be overpriced underspecced alien hardware running a host BIOS (WinXp or not, doesn't especially matter does it? There's no other way we'd ever see a RISC OS portable!
I do agree with your final points tho -- I think there's much more mileage in selling a VirtualRiscPC-Select3 software set on its own. I'd certainly be buying it.