MGMorden,
You're right that on paper, Apple hardware costs more. However, the rest of your analysis is somewhat flawed.
First off, Apple's bread-and-butter customers are home users who want a PC that simply works; a few hundred dollars won't sway the equation for these consumers. The reason Apple is a niche vendor has less to do with MS dominance (MacOS was clearly better than Winblows for a decade) but rather because x86 hardware became commoditized and Apple was stuck defending a small slice of the PC market; furthermore throughout much of the (early to mid) 1990s they arguably were poorly managed. As of right now, the Windows brand is so pervasive and ubiquitous, Apple even has to compete in its traditionally strongest segments: schools and homes.
As far as businesses go, Macs have never been strong in corporate circles, where the applications and compatibility (and also value) are the most important criteria.
In short, it's unfair to "blame" Apple because Winblows (often an inferior product) enjoys a natural monopoly that is strengthened through illegal actions. The only part you can blame Apple for is that they did not port MacOS to x86 boxes in the late 1980s; at that time they could perhaps have won the GUI war.
Finally, if Macs TCO is lower it's probably because in general their hardware requires less maintenance and Macs time in service is longer (I find it somewhat peculiar that quite a few original PPCs are still in use). This is a somewhat ironic conclusion since x86 boxes are higher performing to begin with, but the Macs are used for a longer time period. Either typical Mac users need less performance (which is possible) or their software degrades less than Windows (fairly likely).