Initially, but if they can get enough volume to start differentiating price based on features, a substantial market will show up for people who like the idea of not paying for things they don't want.
I've learned this trying to buy a simple mobile phone for my technophobe father and a VCR that just played stuff (no recording) for my aging grandmother.
The main theme of the reddit topic on this seemed to be people excited about 'only paying for what they want', yet by doing so you remove the main advantage of mass production; lower per unit price.
This interesting article on the manufacture of microSD gives a small glimpse; http://www.bunniestudios.com/blog/?p=918 The second to last paragraph is particularly interesting.
Once you remove standardization all kinds of hidden costs creep in, from not being able to order such large volumes of components right down to hardware testing.
My guess would be because in the PC world it's expected - people demand a certain level of choice and configuration. Beyond a very basic level (capacity, colour), I'm not sure that demand exists for mobile devices.
But looking at the site in more detail, it does seem price competitive (I made a phone spec-ed to the HTC Desire and it's pretty much bang on the same price), though obviously you can't get it on a contract.
We'll see. One thing that does occur is that their phones will presumably ship with vanilla Android rather than a network / manufacturer modified version. I know people who'd pay extra for that.
UPDATE: Just realised that the HTC price included tax, the custom build didn't. Wouldn't be huge but would make it maybe 10% more than the Desire,