You pay for what you get and the 'cheapie' iMacs are out there to compete in the market place with cheap bottom line PCs. Having said that the 1.7GHz model have twice the bench rated tests of the 2007 model, together with faster graphics and memory.
No, the cheapo macs are made to force consumers into higher prices and higher tiers. It's the same reason they reduced the ssd cache in the 1tb fusion drive to 24gb, so people would buy the 2tb and 3tb models