Yes, the RX1 is definitely direct competition with the Leica X1/X2, which still has a much smaller sensor and has trouble with subject isolation.
Sorry but I have to disagree with this. Leica users buy Leica, because it is Leica - they will not buy a Sony, because it is a Sony. $800 premium is not in the same class at all. At this price, they don't expect to sell many but to show they could.
The word for this camera is "boutique" and in my mind is no different than the recently announced $25,000 84" XBR-84X900 4K LED TV by Sony. They made it because they could and it is the first of a new line that eventually drop in price for the market.
For those who think a full frame mirror-less system is attainable, they just found out how much it will cost. It is good to see someone finely did make one though - it shows they are seriously considering it. Hopefully it will get the ball rolling for something in 5 years that us mere mortals can buy.