The iTunes store is designed to make it so that apple can sell more iPods. The prices are artificially low. Apple makes a lower profit then they really should on song sales because they are trying to sell more iPods and similar devices
No arguments there, except for your point about Apple not doing well on iTunes sales. They're taking a 30% cut on each sale in iTunes, so all in all, I think they're doing pretty well.
30% is low when compared to what music labels make on music distributed and their cut is often taken after expenses are paid. Apple's cut is pre-expenses, which means their net profit is less then 30%. They also (used to) advertise heavily and do aggressive giveaways which would also eat into their net profits