Even outside of the Arduino project, where can you get a insystem debugger(AVR Dragon) for 50$.
Microchip's PICkit 2 does debugging with no size limit for $35USD. It also doesn't fry if you plug it into the wrong kind of USB port (ie. the kind that limits current, like I have), which I can't say for my Dragon, may it rest in peace.
I honestly don't think this is going to be as bad as many people are making it out to be - Microchip would be crazy to alienate AVR developers by discontinuing the line. That would guarantee that a whole bunch of developers never use a Microchip product again, and I doubt they're that stupid.
Personally, I'm hoping they extend their samples program to encompass the AVRs 