Ask Daphne! Am I being bamboozled?

A pair of “free” shoes (with purchase, subject to conditions, please don’t read the fine print) for MK, who writes:

I have been in touch with a publisher, Publish America, and they are interested in publishing my novel. However, I have serious concerns about whether I’m being treated properly. I’m hoping that you can give me a little advice.
They have offered a $1 advance and 8% royalties for the first 2000 copies, the percentage increasing in steps with the number of copies sold.
They say that this is standard, as they incur all the risk, but don’t all publishers incur risk? Why is the advance so crappy? A fellow author just sold his first novel with a significant advance, and receives 75% of all copies sold. Granted, that seems high to me considering the publisher incurred all the risk for a first time author, but I’m trying to get a grip on what to expect. These are two VERY different ends of the spectrum, and I smell a rat.
Can you shed some light on this for me?

I’m more than happy to shed some light on this, MK, and to all writers out there. If Publish America comes knocking on your door — run away! Run far away! Run like a little girl!
Writer Beware, which is one of my highly recommended Writer Resources, gives Publish America two big thumbs down, for a number of good reasons. Read it yourself, but to sum up, Publish America is a vanity press attempting to disguise itself as a traditional publisher. Authors have lodged numerous complaints against them (source). To put it bluntly, yeah, you might get a finished book out of them, and you might make a few bucks, but then again, it may look like a cheap edition someone printed off on a computer and stapled together, and you might never be able to find it in a bookstore. Is that what you want?
To get to your more general question, yes, all publishers incur risk, but almost everything single traditional house offers an advance against royalties that is calculated according to the number of copies they hope and expect to sell, taking into account market conditions, supply costs, and numerous other factors. An advance, as much as anything else, is a type of guarantee to the author that the publisher wants to produce a quality book, and hopes to do well enough with it to earn back the money they’ve spent. If you look at it that way, why then Publish America doesn’t seem to think your book is worth anything, and if that’s the case, why are they publishing it?
M.K., some of the best advice I can give to you, and to all writers out there, is to know the market. Research it. Read up on publishers who want to publish your book, agents who want to represent you, and anyone you want involved with your work. Double-check references, and seek out multiple sources of information. Don’t take anything as gospel unless you can independently validate it for yourself. Be wise — this is your career after all. Don’t screw it up by letting a charlatan walk in and make a mess of things.