Let's get some things out of the way before we talk about economic problems with virtual goods. There are some bits of information that need to be accepted before you can fully understand the problem.
The first bit is, since these transactions are so small, it's very important that the buy have no real idea of how much they're spending. Remember that the buyer is actually buying nothing. The virtual hat is actually that, virtual. So it's important that the exchange rate be difficult to calculate. The worse position to be in, is where the buyer knows exactly how much they're spending with easy math they can do in their head. You want them always to be thinking in terms of their virtual money, not real money.
Got that? That's why songs in Itunes are 99 cents not 1.00 dollar.
The second piece you need to understand is that there are Magic Numbers. These are the numbers that people feel comfortable using in their head to do simple math. These numbers are 2,10 and 5. Other numbers, such as 3, although small they aren't as easy to multiply in your head, unless of course the other number is one of the magic numbers.
If you have all that... take a look at the picture to the left. This is a screen shot from Farmville iPhone. The first option... 5 real dollars, yes it shows 4.99 but for math people will use 5, and 25. We know that 5 is one of the magic numbers and 25 is an easy multiplier.
Just like that the buy knows that for every real dollar, they're getting 5 Farm Cash. What does that leave us with? We still don't know the exchange rate. But the numbers left help, 5 (a magic number) and 1.00 (100 is an easily multiplier of 5)
Just like that... 20 cents for every Farm Cash. This is easy "do it on your head math" using the magic numbers that breaks the number one online retail rule.
This isn't the end of the world. I'm not suggesting that Farmville on the iPhone will fail, but this will be an anchor on the beautiful sailing ship. I will give them credit, the second item listing, is not easy magic math. The downside there is, it's the SECOND item and most won't use the numbers for the math.