They make a lot of sense in the US where a car getting more than 25 seems to be a 'good deal'
Here in Europe even with higher fuel prices they seem to make far less sense, especially at the price they sell them for. Some comparisons of similar sized cars :
Cheapest Prius - 19,800 GBP
Peugeot 308 HDi - 16,190 GBP
Focus TDCi - 17,890
Citroen C4 (5 dr) HDi - 15,790 GBP
VW Golf TDi S (5 dr) - 17,840 GBP
These are only the 'mainstream' competitors. Start including the likes of Chevrolet (aka Daewoo), Kia, Hyundai and so on and you can start to get even bigger Diesels in for the same money. Full disclosure - add in auto trans (DSG, Sensodrive etc.) and the prices close up but then again most European drivers don't drive autos and you can't specify a manual Prius.
The difference in fuel economy between the Diesel models and the Prius is also going to take a long time to pay back. And that is using the official figures. Very few UK road tests I have read and owners I know (Gen2s and 3s, bit NOT hypermilers) get anywhere close to the claimed MPG in normal use - they just drive the things as normal cars here in the UK.
Combine this with the fact we do lower mileages than in the US (typical used car annual mileage is estimated at just 10K) and that new car owners tend to only keep their cars for 2-4 years mean that payback is probably never for them.
The few people I know with Prius's in the UK are mostly exactly the kind of people who bought them for the green image, precisely the thing Jeremy Clarkson hates. The remainder of them run also second cars which are not green - think X-5, Range Rover, Merc S-Class and so on. The Prius is their way of sticking two fingers up to the congestion charge which they are free from.
As for the insight there is a car more expensive that a Civic with only slightly better economy, less space and an awful ride. So why bother ?