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I agree that there is a pretty small market for this unit, but it does have a few things the 22xx/194x series doesn't have...
1. 3.8" screen vs. 3.5" screen. Also most people are reporting the screen is better than the 194x/22xx screens
2. As you mentioned, compatibility with all the expansion sleeves. Some people really need the PC Card sleeves, etc.
3. Compatibility with existing cradles... at $50 a pop, this is a consideration
I think this is a "step" model for people who have 38xx/39xx iPAQs, have a lot of money invested in accessories, want WM2003, and are comfortable with the form-factor.
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If it can't be done with XS, then it shouldn't be done at all!!!
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