I've always considered the "hardware appliance" business as some kind of racket akin to the old Military Industrial complex post World War II. They had fear and superstition in common, and most importantly, the racketeers were able to cash in big on the ignorance and superstitions of their customers.
You can see this in the "hardware appliance" market today with vendors like Cisco and Blue Coat, who charge unseemly premiums for low to moderate grade hardware and software bundles. They get away with this by sprinkling a generous portion of fairy dust over their products, which magically makes their hapless customers believe that their offerings are more secure, higher performance and more reliable than a Windows based solution.
It's an amazing disconnect for us who have been using Windows based Firewalls, email systems, databases and other applications for years without any significant security, performance or reliability issues, or at least fewer than those documented by the "hardware appliance" vendors (this is in regards to security, where Windows based Firewalls have a better track record, security-wise, than most "hardware" implementations).
But I think there's light at the end of tunnel. Today's network admins are smarter than those who "grandfathered" in from the 1990s. Those old timers think in terms of "port opening and closing" and "Windows 95 isn't secure". Modern network admins realize that Windows is as secure as you make it and Windows based Firewalls, such as the ISA Firewall, can be as secure, and in most cases, more secure than so-called "hardware" firewalls.
Even more important, the "hardware firewall" hucksters are going to have to deal with changes in the market. One of the Old Chestnuts guys like Blue Coat like to throw at you is that "we have higher performance because we're purpose built". My ass. If I create a white box solution with a dual die, 4-way per die, making for an 8 way box, I'll wipe out any fantasized performance advantages that the Blue Coat box might have, and I'll be able to do it at about half the price and not pay PHAT margins to the sales guys who supply me with a load of bull about their relative performance, reliability and security when compared to Windows.
For another excellent perspective on the "hardware appliance" smoke and mirror show, check out Why appliances are dinosaurs at http://www.theconvergingnetwork.com/2006/11/why_appliances_are_dinosaurs.html