My reply to that has always been that Windows is only $300 if you don't value your time. (Preserving archaic cost of Windows to match JWZ quote.)
The implication that the one system is free and time-consuming and the other moderately in price but not time-consuming is entirely false. At the time, for many requirements, configuring and administering a Windows machine would have been more time-consuming than for Linux. It's also glossing over the fact that you can't horizontally scale your $-per-cpu/server solution once you do have the configuration worked out, without going back to the well for more money.
This amusing and glib quote also deliberately glosses over the "freedom" part of free software, which is essential. For example, I wonder if Google would exist today if not for a free unix workalike.