2) CDs are incredibly cheap to mass produce, and the machinery for making them has long since been amortized, yet the companies are still charging $10 to $20 for 'em (the artist gets a small cut).

True, but MAKING the cd is expensive if you're paying your fellow artists to play on it, a recording studio to record it, a designer to make the booklet, roayalties to writers and publishers..all paid before pressing costs.