The gang at TGDaily has a good commentary on Larrabee and what developers are really thinking about the information released earlier this week.
The answer to the first question is relatively simple. Intel is positioning Larrabee in a market that already exists and that has plenty of applications: Gaming. Intel told us that Larrabee will support all the existing APIs (and some more) which should enable gamers to run games on it. How well Larrabee can run games is unknown to us and a “secret”, according to Intel. But it would be strategic and financial suicide for Intel if Larrabee would not be competitive with the best of graphics cards at the time of its debut. Nvidia for example, believes that Larrabee needs to be a “killer product” in order to be successful. Will that be the case? No one knows. Not even Intel – at least not if the company does not have spies in the right spots within Nvidia.

However, graphics appears to be only the first phase for Larrabee. Those extra features, which Intel says will allow developers to innovate, cover the more interesting part. In the end, Larrabee is a potent accelerator board that just happens to be able to run game graphics and playback videos. But Intel wants developers to do much more with it: Like GPGPUs, Larrabee can ignite a whole new wave of floating-point accelerated (visual computing) applications far beyond gaming. If Intel can get dozens of millions Larrabee cards into the market – by selling Larrabee as a graphics card – the company may be able to motivate developers to go beyond games and take advantage of the advanced cGPU features of Larrabee.