You're missing the point... yes, it wouldn't be the fastest machine around, but that's not what it's for. It would be dirt cheap and plenty fast. A early 90's C64...
You are missing the point. This is not just about speed - it's about price, target audience and percieved value for money.
The C64 was still selling like crazy in 1990, while the A500 had dropped below the 1000 DM/350 UKP mark by then. Between these two, there was simply no space for another machine. The C128 had been discontinued for that very reason, despite selling better than the A500.
Introducing another machine between these two would have just hurt sales of the existing two options. It would have made an A500 look to expensive or the C64 to slow. Not to mention that a third incompatible platform would have been extremely stupid, especially as late as 1990.
As somebody already said: the C64, the A500 and (to a lesser extent) the C128 were handled properly. The real problems were the lack of focus, the lack of advertising and the number of crappy computers (+4/C16/C116, A500+, A600) Commodore released, apparently to stop their best sellers from becoming too successful.