This "question" has several answers:
1. The $499 HTiB Wal*Mart special. This is a misnomer. Wal*Mart specials are $49 and $199 pieces of sh1t. $499 buys you a halfway decent HTiB from the likes of Yamaha, Sony, Onkyo, Panasonic, etc etc
2. The receiver in my HTiB has 1000 total watts, with 300 for the subwoofer alone. Asking a manufacturer how many watts its equipment has is similar to asking a highschool boy how many girls he's slept with. They will lie through their teeth to look good. The government doesn't really have the power to regulate such claims (or just don't want to). An example was a Sony HTiB that promoted "100watt x 5 channels!", but when measured on an objective computer, only found a paltry 12watts/channel with a crippling 10%THD.
The other side to this problem is that "watts" are not the end-all/be-all of loudspeakers. efficient peakers can play very loud with only a single watt. A HSU Research TN1220 subwoofer will easily outperform any HTiB subwoofer if you hook it up to a 25watt amp. Just like you can't judge a car based on its total HP output at 8000rpm, you can't judge a subwoofer at total watts driven.
3. Whats wrong with $500 HTiB systems? Nothing is wrong with them. They are designed to perform as well as they can at a cripplingly low price. Consumer audio has prices ranging froma $49 surround-sound system to CD players costing more than $20,000. If a company can design a $300/pair of bookshelf speakers, the same company cannot make equally good speakers for a fraction of that price.
Concessions have to be made to price, and HTiB's have the least expensive components designed and sold for the best price. Some people will be happy with a $500 HTiB, but music and movie lovers will soon desires better speakers, subwoofers that play lower & louder (subwoofers are universally very poor in HTiBs), receivers with better connections and more power, etc etc.