Downsampling ≠ binning. Binning is summing pixel outputs, which has differential effects on signal vs. noise. Downsampling is averaging pixels, not summing them.
True, it's not hardware binning, which means you don't get that extra read noise win. That said, I've frequently seen the term binning used both for summing and averaging, both in hardware and software, but if you'd prefer to limit the term to hardware binning, that's fine by me.
The point I was trying to make is that if you take a 5DMk2 image and scale it down to the same size as a 20D image, each pixel on the 5DMk2 image came from a much larger area of silicon than each pixel in the 20D image, hence the SNR improvement from a larger sensor, if everything else is equal, comes from not doing an apples-to-apples comparison. The fact that (AFAIK) folks can see real differences even when pixel peeping tells us that all else isn't equal.
With that said, I agree with you that no, there probably is little to no market for an 8MP camera with good ISO performance. Read noise is getting better every day, and IIRC, the shot noise benefits of lower MP sensors can be achieved just as easily through simple downscaling.