$40 is not unusual as a deal for bundled XP Pro, tho list prices vary from $166-323 from vendors (MS sells it at $299).
Bear in mind that all you get for this is an OS, a mediocre browser, an insecure email client, a cut-down word processor and no support. You do get a licence, but it removes most of your rights......
When vendors contract with MS, the stipulation is that in exchange for reduced prices on XP, they don't support other OSes and all PCs MUST leave with a copy of XP on them (no bare boxes).
It's a bit difficult to work out equivalent Linux pricings because so much is free (just ask Canonical and they'll send you as many CDs of Ubuntu as you want gratis), but SuSE Linux 10 with 90-days support and all the manuals and CDs will cost you about $60 (of course you can download the core ISO for free).
Your $60 gets you the OS, 90-days support, all the manuals, and hundreds of applications, including office suites (KOffice and OpendOffice), browsers, mail clients, web servers, CD burners and etc., etc., etc....
And you're free to duplicate it, modify it, download new bits for it, sell it, bend it, break it and generally do what you like with it under the GPL.
Sure, Linux isn't yet as smooth (?) as XP and you might have to occasionally hunt around a bit and (gasp!) even learn a bit, but it seems pretty clear where the advantage lies right now.