Firstly, I question that the competition is unfair. Yes, Mark Shuttleworth is in a position to through money at Ubuntu because of his personal wealth. So what? If he is doing so because he thinks it will make a profit, then that is just capitalism in action.
If he is subsidising Ubuntu even though it does not make economic sense, he is putting money into Linux development and strengthening network effects around Linux — the area where Windows is hardest to compete with.
Ubuntu’s big achievement has been marketing. The combination of Shuttleworth’s high profile and willingness to spend on marketing has got people to use Linux who otherwise would not have done.
Ubuntu has certainly changed the market: it has badly damaged some distros, encouraged Ubuntu (and Debian) derived distros, and hugely damaged KDE by exposing new users to the badly implemented Kubuntu.
I agree with Adam that Mandriva is currently better than Ubuntu: its control centre, easy installation, good KDE implementation and helpful (to a large extent thanks to Adam) forums more than make up for its shortcomings (less dependable package management and lots of bugs in less popular packages). I have used Mandriva for years (when it was Mandrake, starting with version 8), and even paid for some versions. I would pay again if the shortcomings were fixed.
The problem is that Mandriva (and other distros) never got the momentum going that Ubuntu has. They did not do it before Ubuntu appeared, and I do not believe they would have done it if Ubuntu had not appeared.
I do think Mark Shuttleworth genuinely does want to make Linux a real competitor to Microsoft (i.e. with comparable market share), and the sort of aggressive promotion that takes is bound to squash some other Linux companies. Eventually, we end up with bigger and better Linux. Overall, its a win for Linux.