One of the most expensive parts of an arduino is the USB to Serial converter. These typically cost around $15, and considering the fact that the electrical components required to make an arduino compatible (ATMega328p chip, 5V regulator, capacitors, resonator/crystal, resistors) total around $3.48 for 1 or $2.70 when purchased in bulk of 100, the USB to Serial converter is about five times the cost of the other components (not including the PCB, which can vary in price depending on the footprint. a 2"x3" PCB is around $5 per PCB for a quantity of twenty at the time of posting).
Electronics-lab.com's Blog posted about a schematic for a USB to Serial converter (links to blog post and schematic below). A cheaper USB to Serial converter would be invaluable for creating lower cost arduino compatibles. Either that, or I have to use the same USB to Serial converter that the fellows who make the arduino use. They use an ATMega16U2 that has been programmed to convert USB to Serial, which adds another layer of complexity to the board than simply an FTDI chip whose sole purpose is to convert USB to Serial (more info at http://arduino.cc/en/Main/arduinoBoardUno).
The purpose of this search for a cheap arduino is to get it into the hands of as many children as possible to promote electronics education. While a $25 microcontroller (when bought in bulk) isn't prohibitively expensive, if a cheaper alternative is possible and a little research helps towards that end, why not try?
Electronics-lab.com USB to Serial Converter Blog Post: http://www.electronics-lab.com/blog/?p=21327
USB to Serial Schematic: http://www.obddiag.net/usb-2-serial.html