The problem is the fact that, as you said, SMS turns into an MMS after you reach 3x SMS worth of text. This is best for MOST people, but not for everyone.
It is not true to say you either have 400 or unlimited. Every plan is different in every country. Here in the UK you can get plans that give anything from 0 free SMS messages to Unlimited, depending how much you pay and which network you go with. Some plans include MMS in the free messages, some don't.
As Arkilus said, for example, in Brazil MMS are not free and cost around $3, so sending any text over 480 (that's 3x 160) characters will suddenly increase the price by a factor of 10.
In the UK, the opposite is true. An SMS message costs around 10p, and an MMS around 30p, so if you send more than 3 SMS messages it is indeed cheaper to convert it to an MMS. In this case, Android works well.
On an Unlimited plan, however, it will NEVER be cheaper to send an SMS message, as you can send an unlimited amount of text for free as SMS, so converting to MMS is a bad idea.
Email, while a solution for some people, is not really a good solution. Not everyone you're sending to or replying to has access to email on their phone, or choose to use it on their phone.
The bottom line is people want to be able to manually set the number of SMS messages to allow before it converts to an MMS, and whether it converts at all. Some people want it never to convert, some people want it to convert after 2, 3, 5, 10 messages.