If I may add my 2 cents...
Normally, I would say there's no way in hell apple would release a midMac. When I think of Apple under Jobs, I think brilliant and visionary, but close-minded and stubornly stupid.
However, lately there have been a number of signs that Jobs may be stubborn, but he's not immovable and will change course when it truely is an obvious good idea. Some examples:
•Selling a mac under 600$ without a keyboard or monitor => me "no way in hell" = wrong
•Switching the entire platform from PowerPC to Intel as in the Intel in wIntel => me "no way in hell" = wrong
•Selling a two-button mouse (granted a "hybrid 1 or 2" mouse) => me "no way in hell" = wrong
•Making it so that windows can be run on a Mac => me "NO WAY IN HELL!!" = wrong
Therefore, I think a midMac will surface in about 2 years. For now, I think there are 3 "problems" preventing it from happening.
1. Chip supply. I remember reading somewhere that Apple was having a hard time getting the chips it needed
2. MacPros. I think Apple is afraid of losing not iMac sales, but MacPro sales. I think it is tremedously profitable for Apple to trap its Pro users into paying top dollar for top end towers. I remember reading that when Apple introduced its "lower" end towers like the G5 rev 1 or something for 1699-ish it was by far the biggest seller, but at the expense of sales of the pricer (and more profitable) 2000+ models.
3. Market share. I think Apple believes that there isn't enough of a market of buyers for midMac to make another line of products economical. Also, I don't think there is enough of "stuff" to change in the MidMac. Apple doesn't have the market share to intice 3rd parties to offer add-ons like windows does. For example, there's hard drives for macs, but not much in the way of dvd writers, graphics cards, tv tuners, etc.
In conclusion, I think both sides are right in a way. MidMac is coming, but not quite yet.
In fact, if my prediction track record serves as a guide, I will be wrong again, and Apple will anounce a midMac at MacWorld Jan. But I swear it will be 1499 and everyone will bitch and moan that it must be under 1000 dollars