According to many of the stories covering this on xpace.com, Burt Rutan (Dick Rutan is the one who flew around the world) is doing this to show that you don't need a large government organisation to get into space. SpaceShipOne wasn't entirely aimed at winning the X-Prize, that will just be a nice bonus. It definitely isn't going to cover the development costs. If he had wanted to win the prize, they would have been far more aggressive with their flight schedule. As it is, they are taking it one step at a time.
They won't get into orbit with the current designs, but Rutan wants to keep developing this into larger craft that can actually attain orbit. Much like the US and the Soviets did with their space programs in the '50s and '60s. Start small, and work your way up.
The X-Prize is trying to do for space flight, what the many challenges and competitions early last century did for powered aircraft. They are trying to bring some interest and excitement back to space flight, which you have to admit has been sorely lacking lately.
Good luck to SpaceShipOne and all the rest!!!
goates