It's hard to say that was really what nearly killed them.
No, it clearly was the clone market. I think this is a pretty interesting time in Apple's history but it clearly shows that not even Apple's board understood Apple's market or how to capitalize on it. It was a quick cash grab but a long term blunder of epic proportions.
Apple may have sold fewer computers than the PC clone market but their margins (especially on the high end machines) were staggering. When you say "generic PCs were a fraction of the cost of Macs" so were the margins. If you look at the phone market today, Android sells more than the iPhone but their margins are not even close to Apple's.
Apple had a small band of consumers that would buy their products every year regardless of the price or the competition. This provided Apple with a steady stream of revenue that was pretty healthy if not small.
I understand that the board felt they could grow the marketshare with clones but history shows that you just end up cannibalizing your own market space.
Steve Kahng talked about how they were just killing Apple in the workstation marketplace and no matter how much Jobs threatened Power Computing with lawsuits he knew their contract was rock solid.
Apple ended up buying Power Computing out for something like $100m or $150m when they were hurting for money already because of the clone market fiasco.
Here is Jobs on the clone market:
https://www.youtube.com/watch?v=maIgu_7oLm0Jobs spins the situation a bit here but he is absolutely correct. The entire eco-system was in danger.
-P