The only reason SatoshiDICE isn't paying out 99% is because they aren't being squeezed by a more aggressive competitor offering a 98.9% payout. That day will come. Because with an increase in play, both SatoshiDICE and some other competitor(s) can still operate profitably on a lower house advantage without cheating (which isn't really an option as it would be exposed them and they'ld lose all credibility in a matter of days.)
Not true actually. SatoshiDICE doesn't pay out 99% because the luck/volatility of doing so is highly likely to result in periodic ruin for the house. I've worked with a few brilliant statisticians to come to this conclusion. Even at the current 98.1% house edge, there is non-trivial risk to the house. If a competitor came out with a house edge at 99%, I would not match it, I'd just wait for the site to bankrupt itself.