Competing aggressively on price, more often than not, attracts a certain type of client. If you're taking the cheap option now, you'll often fight over every cent going forward and be pretty miserable to work with.
If someone is desperate for work, they might need to make sacrifices to keep busy. I'm not, so I try not to.
It's not all that aggressive. If your intention is to effectively price out technology X (IE6), I can almost always beat your price by a good mile, and I'll make a point of it.
I think you underestimate the huge price differentials for almost no difference in quality. In fact often quote the opposite. I've seen a factor of 5x in price difference in some cases with virtually no difference in portfolio, mockups, or code quality.
If someone is desperate for work, they might need to make sacrifices to keep busy. I'm not, so I try not to.