How about 16 ICs for $0.50? Techone just purchased a bunch of 7219's for that price. Thats $8 vs $80 right there, so your cost estimate can be adjusted quite a bit.
5V, 4A power supply $7 from mpja.com.
256 RGB LEDs - price can be all over the place.
$38 for up to 100 x 160mm PCB ( I estimate ~100 x 140 for the layout I showed)
http://iteadstudio.com/store/index.php?main_page=product_info&cPath=19_20&products_id=518
$25 for 100x100mm PCB for the LED module : 16 LED x 5 mm = 80mm, plus some room for connectors to mount ribbon cables.
http://iteadstudio.com/store/index.php?main_page=product_info&cPath=19_20&products_id=175
qty 16 2x8 connectors
etc.
$40 seems unreasonably low.
@cvl4317, how will the RGB LEDs be layed out?