Fuel is indeed cheap (The Russkies are using kerosene and liquid oxygen---you can source those locally yourself.), but hardware isn't expensive, either. The expensive part is designing hardware that works correctly, given that it
is 90% fuel.
If a car was a one-time-use vehicle, it would be much, much cheaper than it is now, when it's designed to last at least through the end of the warranty period. Likewise, the Space Shuttle was reusable, but that reusability never actually turned into a win.[2] (I have a rocket-scientist friend who might convincingly argue that putting the Space Shuttle's budget into building a Saturn V assembly line would have been a net win. Building the same rocket over and over seems to have worked for the Russians.)
There are two downsides to reusability, particularly for man-rated rockets: How do you land, and what do you have to do to turn it around.
As was pointed out in the article, IIRC, the Shuttle could put 120 tons into orbit, but 100 tons of that was coming back down with the re-entry vehicle. Kind of reduces the effective payload. I don't know the details of the SpaceX reusability design, but I'm wondering where the landing fuel comes from; if it rides the rocket the whole time, it's coming out of the 10%.
The turn-around part is bad, too. Take a look at [1] for the Shuttle. The interesting parts are:
* "Transfer engines to the Main Engine Processing
Facility and service for future flights," and "When required, the orbital maneuvering system
(OMS)/reaction control system (RCS) pods and forward
RCS may be removed and taken to the Hypergol Maintenance Facility in KSC’s industrial area for maintenance." Yes, SOP involves major disassembly every time.
* "Visual inspections are made of the orbiter’s thermal
protection system, selected structural elements, landing
gear, and other systems to determine if they sustained any
damage during the mission. Any damage to the thermal
protection system must be repaired before the next mission." If!? I don't know the numbers, but after every flight, every tile was checked and a goodly number needed replacement. (They're not cheap, either.)
Is SpaceX flying man-rated yet?
Anyway, turn-around costs and not caring about re-entry make for a bit of cheapitude, too.
[1] http://www.nasa-klass.com/Curriculum/Get_Oriented%202/Space%...
[2] http://en.wikipedia.org/wiki/Criticism_of_the_Space_Shuttle_...