In your premise there is the idea that the more expensive the equipment, the more "serious" the photographer/photography. I think you are confusing rampant consumerism with "serious" photographers. Put another way, I'd rather see something done by Ansel Adams in the '40s with a Kodak Brownie than something done by the average Joe with a digital Canon Wizbang.
The consumer camera market has always been about how to make the average Joe take pictures he'll be proud of, even if he doesn't know the difference between lens aperture and a hole in the ground. To that end, they will make models that extend the whole gamut of price ranges (just as you may have noticed that car manufacturers don't simply make one model/price range). The XS fits a price/feature range between the XSi and the XTi. Just like the Malibu fits the price/feature range between the Impala and the Cobalt.
That being said, a better tool can make being a craftsman easier, assuming he/she learns to handle the said tool appropriately. I think we agree that most people don't really want to learn the basics of exposure (let alone the post-processing necessary in the digital age). They just shoot jpegs and are happy with that.
But don't think that gaining proficiency in something requires us to look down our noses at those who don't share the same zeal, or aren't "as far down the tunnel" as we are yet. And don't make the mistake of thinking that just because the guy has the dream setup recommended in the photo mags means he knows how to use it. All that proves is that he had the necessary funds/credit to obtain that equipment.
Before you look down your nose at the "crippled" Canon Rebel, just remember that the original model 300D is what Hollingshead (and others) started wowing us with years ago.
I don't disagree with anything in your post; perhaps mine was not stated very clearly. I agree that Mike (among others) has produced tons of incredible images over the years with the Rebel series, and as I stated before, I am a 300D owner myself - one who is willing to admit my camera is an intentionally-crippled-for-market-placement 10D/20D
. To be sure, an experienced photographer shooting RAW on a 300D and using proper post-processing techniques will produce images that blow away those shot by your average Joe on a 1D series.
My premise, though - and perhaps it's unfounded - was that the trend towards offering
even more "crippled" models that still retain the "DSLR" label, in spite of axing many of the useful features of their bigger cousins, is probably not beneficial to most serious photographers. And by serious, I mean passionate and willing to learn and utilize the camera's intricacies - which is not necessarily correlated with having the funds to rack up a ton of pro-grade equipment, as your post alludes to as well.
So, let me rephrase: a DSLR, considering its extra size and cost, is only useful (IMO) to the extent that it's able to produce image quality superior to what you could get from a high-end P&S. In my experience, a basic set of 2-3 lenses that cover common focal ranges and offer IQ notably better than a high-end P&S will run you close to or over a grand, at minimum. [For the record, I consider the EF-S 18-55 mm that came with my 300D to basically negate the camera's usefulness when mounted, considering high-end Canon P&S models now offer RAW mode and likely equal lens quality at a lower price point and in a more convenient package - though I've heard the new IS version of the 18-55 has upped the ante a bit]. When you're looking at that kind of expenditure, it seems slightly silly IMO to sacrifice spot metering and the superior AF system, among other features, to save (presumably) $100-$150 on the body. To each his own, though; there will no doubt be some folks on a tight budget who'll gladly bite on this model, learn it inside and out, and use it to produce stunning images. At the same time, the ever-lower price point may also encourage even more bragging-rights purchases by soccer moms who will never know an aperture from a hole in the ground, which is what I was referencing all along.