A game site sold game downloads for $1 each.
The site also offered game developers a one million dollar prize for the first game that reached one million downloads (in addition to standard compensation, whatever that is.) If a developer can make something that one million people will pay a buck for, they get the money. Of course, the site's still making money off the other games, plus the money after the prize is awarded.
The real issue is figuring out what people will pay, and how much more you can sell with a really low price. It costs nearly the same to ship 1,000,000 copies of an online game as it does 50,000,000. Would 20x more people buy a $1 game as a $20? Popcap thinks the answer is no, but their dev costs are way higher than average.
What about flash/java games? There are plenty that are worth a buck, though perhaps not with all the free stuff out there. There's also a concern that something that costs $1 isn't worth as much as something that costs $20, even if a publisher can make the same amount with both pricing options.
Seth Godin recently touched on a similar issue regarding Ebooks, and I think the same model applies to online gaming.