@slburris
Where did you find $6 FPGA? Cheapest I could find so far (large enough to put soft core CPU and some peripherals, and NOT BGA) are Cyclone3/4, 20k+LE for 30$-40$.
Xilinx XC3S50A-4VQ100C $5.75 qty 1 at Avnet:
http://avnetexpress.avnet.com
FPGA pricing is strange - 'published' prices at places like Digikey are a lot higher than what you can actually get them for. e.g. I was recently quoted GBP2.80 (~USD4.20) for XC3S50A in QFP144 in low-100 qty. I've had comparable pricing on similar Lattice EC1 parts. I'm told that a reason is the manufacturers consider FPGAs need a lot of support from the distributor and want to tie customers in to a distributpr to recoup support costs so you have to go through the pantomime of the disti applying to the manufacturer for 'supported pricing'.
With FPGAs you also have to consider the additional costs - config memory, core voltage regulator, oscillator and the fact that routing on 2 layer boards can be tricky due to the number of power/ground pins needed even if you don't actually want to use many pins. Board area is also a significant issue - QFP100 is generally the smallest non-BGA package, and by the time you've added the support parts and decoupling you're talking a fair size and.or double-sided assembly.
I don't think there are many situations where you'd use an FPGA for an app that a micro was capable of - it would lose out on at least some of power, cost and space considerations.
As regards why still use 8 bit, there are a number of reasons, but most of the low-end ARMs have limitations - typically no onboard EEPROM, and 3.3V-only operation being common reasons I choose a PIC or AVR over an ARM for some applications.
The only reason 32 bit costs are approaching 8 bit is they're made on newer processes that probably aren't worth the 8-bit families' manufacturers' investing in. For a given process, 8 bit will always use less die area and less power than 32 bit except maybe for the few applications that can really make better use of the extra bus width.
As it has always been, an always will be, it's a case of 'different horses for different courses', there are just a few new types of horse out there, but the old nags aren't going to keel over anytime soon. Some people are still using 8051 based MCUs !
It would be nice to see NXP's tiny little ARM in something like a SSOP-16 though...!