And what is the solution to a 5970 fusion part choking on 25GB\sec bandwidth?
They don't actually have to make an APU that rivals the high-end.
All they need to do is manage to solve the bandwidth problems for what is equivalent to the entire low-end segment. (That would still take some doing, but more doable than shooting for high-end)
If they manage to do that and, as a result, take away what I assume to be the highest volume segment of discrete cards (the low-end segment; and further assumption being that this highest volume segment also contributes a significant slice of the add-on cards revenue pie), the higher-end parts may die (without being conquered in performance by APUs) simply because without the highest volume segment, it may become economically infeasible to continue with the discrete card business as the revenue from them will not be enough to sustain the business.
Of course, this has always been a concern, hence I am sure NVIDIA and ATi made sure to keep IGP performance as low as they were. The only thing different now is that Intel is in the picture, seemingly committed to improve their graphics (their SB offering exceeded every expectation, despite their previous one being the same old subpar Intel "decelerator"), so AMD may not have the luxury of artificially limiting IGP performance (now within Fusion) to keep from cannibalizing their highest-volume segment of discrete cards.
Cliffs: Fusion doesn't need to be as fast as high-end cards to make those high-end cards disappear or become more expensive (alternative to disappearing; necessary to make the whole endeavor economically feasible for the involved companies). Whether AMD and Intel will play that game, though, remains to be seen, but there seems to be no downside for Intel (no discrete products to cannibalize), so if Intel decides to go ahead, AMD will have no choice.