I bought a 1998 BMW 323is about nine months ago for $7,000. Although I never considered buying a Prius (ugly! non-performance!), I've always thought that I never WOULD have, given the cost-benefit of price versus improved mileage.
Let's actually work out the numbers.
Since I bought the BMW (which actually has a 2.5 liter engine), I've got about 28mpg. According to the Feds, a 2007 Prius gets about 46mpg; according to AutoTrader, it will cost about $20,000. (This lets us ignore the impact of "demand for new cars" on the environment.)
So, with gas at $4/gallon, $13,000 of price difference, 18mpg of economy difference, and about 6,000 miles/year (I've driven 4,000 miles in 8 months), it would take me about 39 years to recover my initial higher investment (if I bought the Prius) in terms of saved fuel economy. If I drove 24,000 miles/year, breakeven would arrive in just under ten years.
Oh, and that's ignoring all the benefits of living with an "ultimate driving machine" :)
Bottom Line Some people buy a Prius to save money; some people must have other reasons.