I'm surprised the seller didn't end that item early as he wouldn't make anything on it otherwise.
I never bid on obscure vacs that start at 99p as I couldn't bear knocking on someones door to collect a vac that I was only going to be paying £1.04 for.
I know sellers are obliged to sell the item at the winning bid price, but many wont, and risk bad feedback for it too.
What you say is correct, sellers should never start an obscure item from 1p, or 99p, as that is the price they may end up having to sell them for, short of using another account to shill bid with (That many sellers also do, that they shouldn't!)