Does anyone here really think that in the absence of baggage fees, ticket prices wouldn't simply rise to compensate? Taking advantage of customer price sensitivity is pretty much the entire ballgame for airfares.
You could argue that the level of service isn't commensurate with what you'd get on a Delta or AA so its not the same product - but I'd say personally that my experiences with Southwest are far more pleasant than my dealings with any of the others.
edit: s/fare/far (pun notwithstanding)
The people who would argue this are probably the ones who also earned status on a legacy carrier before they started really turning the screws on people in 2008, and thus have been immune to all the bag charges and seat fees all along.
But, if you have no status on AA/Delta/United, you'll probably find you'd get a better level of service on Southwest, at least based on my experiences from having flown them recently.
First off, baggage fees are now tax free. That gives a huge incentive to maximize increases there.
Second, consumers will simply pick a flight based on lowest cost, not realizing the exorbitant baggage fees. Regular business customers will either already be using carry-on only, or the business will eat the cost. Consumers usually don't fly that much, so they'll fall prey to the misdirection, probably forget by the time they fly again, and will likely consider x bags a necessity.