Well... 1B is an amazing amount of money, but it is "just" 1% of Facebook post IPO value. What are the odds that Instagram growing more and more, the market freaks out, and Facebook stock loses 3-4% in a few weeks. Facebook buying Instagram is an insurance against this bumpy ride happening, and at a price much less that what it would be on the stock once Facebook becomes public.

Except that in the 1800's you couldn't build another B&O in six months with a couple of nerds with Macs.

You're thinking of Valve.