It was an interesting read.
1. He misses one potential solution (or mitigator). You can trick consumers into paying more by selling them multiple books instead of one really thick book. Consumers who would never, ever pay $100 for a big, thick hardcover book with high production values will in fact pay $100 for three medium sized hardcover books with high production values. This probably extends to other types of products as well.
Very good point. For example, I wonder how many people bought all of the "War of the Burning Sky" books, but won't by a massive, compiled tome. Or who buy every issue of Pathfinder, but think the Shackled City hardcover is too expensive.
2. While I agree that the pdf "race to zero" is going to have an effect on the overall market for RPG materials, he seems to be directly and specifically blaming Paizo. I'm not sure that's warranted.

Consumers were going to demand cheap pdfs relative to book costs whether or not Paizo led the way.
This (along with the "kids these days" nonsense) is definitely the weakest point in his entire post. He takes 1 data point - the low price of PFRPG PDF - and extrapolates an entire trend in PDF pricing. One single data point. I can list many reasons why that's an outlier, but it's actually easier to point to all of the publishers that offer PDFs priced at or near the physical book price and I can draw just as unfounded a conclusion as he does.
6. I do not believe that edition wars are instigated by an unconscious desire to tear down other game companies so that your favorite one can survive.
Considering the edition wars started LOOOOOONG before most companies "picked sides", this armchair psychology is clearly wrong.
If James Mishler knows of a fiction market that regularly and reliably pays 10 to 20 times RPG rates (that's $.50 to $1.00 a WORD) for "even poor fiction," he should probably be writing for that market instead of peddling niche PDFs and complaining about how he can't make any money off of it.
Hell, if he could post the link, I'm sure every freelancer here on EN World (myself included) would love to be writing for that company.
Exactly! Makes you really wonder where he gets some of the assumptions his argument relies on from. I hear you can get those sorts of rates in main stream magazine article writing. Sitting down with Google for 2 minutes shows that 5 cents a word is a good pay rate in the SF&F fiction market. As one website labels 5 cents and up
"markets to drool over". (That's just one site, but spend some time with Google and it's clear it's a consensus across many.)
Maybe he's considering the "even poor fiction" earning $1.00 per word market to be the Oprah's Book Club market. I'd consider that style of 'misery fiction pretending to be deep and thoughtful' market that pays very well for poor fiction.
In general, the best that post says is that "business as usual won't work for small press anymore". That's true, but considering how many small publishers folded over the past several years, it's not that surprising of an observation. Currently, however, publishers big and small are innovating. DDI is the clearest and largest example of this. But also the shift towards utilities rather than books is another major one. Also, I expect to see something better than PDFs coming around that make electronic products at least as valuable as physical books.
So publishers need to innovate (and actually are) and get out of the business as usual mindset. Yes, if you want to be a small publisher, you can't expect to just hire some freelancers, print a couple thousand books at a traditional printer, get them in stores everywhere, and then watch the money come in. But that hasn't been true for 4-5 years, I'd say. Calling that business model unprofitable in 2009 is beating a long dead horse.