I don’t own a Phonogene so I can’t comment on what it’s like to use that vs Cycles, but from the videos I’ve seen of Phonogene and my personal experience using Cycles, my impression is that Cycles is quite dramatically more flexible than a Phonogene… but it seems like that’s not really what the issue is, more the perception that software should cost less than hardware… which I personally think is kind of irrelevant.
I think that most people would be able to gauge from the videos of Cycles whether it will be useful to their workflow. If it is, it’s easily worth the price… it is for me anyway. You can do a lot of the same stuff that you do with Cycles with chains of other VSTs/native fx, but I haven’t found a faster way to get the great sounding results and dramatic transformations I get with Cycles, and that time savings is very valuable to me. In addition to that I’ve gotten sounds out of Cycles it’s never occurred to me to try creating before, and that makes it pretty much priceless.