While I think that we all know logically why the LBS is better and why a $200 bike from Wal-Mart isn't as good as a $400-$500 bike from the LBS, many people don't think that way.
I took a friend bike shopping a while ago. He's a heavier person and was told that riding a bike would be good for him because walking (or running) puts a lot of strain on his feet and legs. He had concerns as to whether a bike could handle his weight.
We went around to the local shops and found one that would sell him a bike for $400. They would rebuild the rear wheel to handle additional strain due to weight and that would be around $80. They were willing to swap out some parts that he didn't like and they were going to upgrade some other things. The bike and frame would have a 10 year warranty (I believe), the wheel build would be a lifetime warranty. They would handle all the initial tune-ups, etc., at no cost. The total price was under $500.
He didn't go for it. Instead, he lamented about how "when we were kids, bikes were cheap and we rode them everywhere". He also was put off by the whole array of clothes, gloves, and helmets because "when we were kids, we didn't wear any of that stuff". After all of it and even though he had concerns about a bike being able to handle his weight, he decided he really didn't want to spend that much money even though he had the money and his doctor really urged him to do this.
I went over everything with him, about how the first few months the bike'll go out of adjustment, about how you need someone to help you build it up if you don't know what you're doing, and about how warranty (and lifetime warranty of that wheel build...the warranty included truing) were nothing compared to what he'd pay for by buying a Wal-Mart type bike.
So I guess I'm saying it makes sense to us. We can list it out and from experience, we know what it's like and what to expect. There are people, however, that have the "when I was a kid" mentality and think a bike is just a bike and quality (or lack thereof) is just an excuse to raise the price. I think it's wise to have examples though for those people who are open to discussion. Pictures or a cost comparison might appeal to some.
Shopping with that guy made me want to bang my head on the wall.