It doesn't need to work well, because Microsoft expects most people to wipe the Starter Edition and install a pirate copy of XP Pro.
The reason why this exists is that Microsoft wants to force PC makers to supply machines with Windows preinstalled to the Asian market. The makers don't care whether the OS they supply is crippled or not (because they know it is going to be replaced immediately by purchasers), but MS has put pressure on the local governments to only buy machines with a legitimate copy of Windows on it from suppliers who don't sell "naked" PCs. The governments will then be pushed to upgrade to the full Windows versions.
As for the general public, MS will get their "tax" with the Starter Edition, and then the piracy is less of a problem. If also helps keep local governments who want legitimate products but don't want to pay the full price away from alternative solutions such as Linux - which would hurt Microsoft's bottom line much harder in the long-term.
The thing that I find the funniest is that R&D to create that castrated "OS" would have been almost as much as to create full version because limitations are totally artificial.
Of course it won't affect piracy in the slightest - I don't know what they hope for, perhaps they want to look good as if they were showing good will and "developing" cheap OS for 3rd world countries?!?!?! Well they forgot one thing - even $50 is a lot there, they might as well go for free Linux running on cheaper hardware.
Its not about Windows anyway - the OEM cost is pretty good, however they totally rip people off on Office which did not change much since mid-90s. This is the rip-off, and also all those nicely linked per-CPU priced servers.
windowsxp starter edition is a joke. it is a slap to the face of third world countries. 'ohh, you can't afford it? heres 1/16 of an operating system for 1/3 the cost'. its like giving these people microsoft's scraps, and making them pay for it.