I think that's called Galaxy SIII. There should also be a new ~$500 Nexus this summer running Jelly Bean.
Why the the iPhone 4S/Galaxy Nexus cost what they do I don't know...
Does the same stuff quite happily.
Much as my 5 year old laptop does the same stuff quite happily as a modern flagship device.
So when people say "yes, but can it match my dual core, 1.5Ghz, whatever else flagship Android phone?", the answer is simply "it doesn't matter". That's not a cop-out, that's not a defense, that's the truth. Windows Phone and iOS are built for their hardware and always run at a constant speed. It doesn't have bleeding edge hardware, but it doesn't need it in order to run as fast as a flagship Android phone.
I'd go as far as saying that the software and hardware are at one with each other.
It sounds like you're saying Android has something special that needs more hardware, which isn't true. The _base system_ needs faster hardware, because it's general purpose. An Xbox can run faster than Windows on the same hardware because it's designed for just one implementation.
In short, troll more.
So why does that 710 use low-end components? One reason is that it's positioned as low or mid-range device, competing against other cheap phones built from cheap components. Another is that there's not much wiggle-room in the WP7 hardware specs. You're going to have a screen of a certain resolution, a certain amount of RAM, a certain kind of Qualcomm SOC, etc.
Luckily for Nokia, in this case these reasons are well aligned. Unfortunately for them they're also forced to try to sell pretty much the same hardware in a different case as their flagship devices. (There are minor spec differences like the amount of flash or the exact technology used for the screen).
And yes, there are real benefits to the higher specs. For CPU perhaps not so much, but the quality of a screen is a huge selling point. A thinner phone is both a good selling point, and much more convenient to carry around. Extra RAM is always useful - on many mobile devices browsing is really frustrating compared to a desktop partly due to how little data can be cached. A better GPU can be a big deal when it comes to games (certainly Apple has managed to do well there). A phone with better specs is going to have a smoother upgrade path to newer versions of the OS.
And I don't see why WP7 phones would be exempt from this. For example, I find it hard to believe anyone could argue that at least some WP7 devices would not be much better with a higher resolution screen than the one mandated by MS. And of course the people buying a Lumia 900 now are going to be really pissed off when they can't upgrade to WP8 next fall due to being sold devices using a 2 year old spec.