Yeah, but the A340-500 can't do max range at max load. SQ didn't put the fancy Economy cabin into their EWR/LAX-SIN planes because they wanted to - they didn't have a choice. At "normal" config, the plane can't fly that distance. So they had to put in a lot less seats. Same reason they dumped their A340s as soon as they could get 777s that could carry more people the same distance.

The 7E7 will be more then just her GE and RR engines, though they will be a large part of the performance boost and the A350 will benefit from them, as well. The 7E7's composite framework will mean less weight then the A350 (Airbus is going to try and make the wingbox of the A350 composite since it is the heaviest part of the plane, but the rest of the fuselage will be aluminum). So the 7E7 will need less fuel to carry the same load as the A350, even if they have the same engines. Also, while the A350 wing will be new, the fuselage will be the A330s (which itself is no slouch) while the 7E7 will be able to have a more "tweaked" fuselage to maximize aerodynamic efficiency and reduce fuel-burn.

And yes, every A350 is one less 7E7, but every 7E7 is one less A330 and with 80% of the sales market vs. 20% for the 767, Airbus stood to lose a lot more from the 7E7. The 7E7 will keep current Boeing customers who don't want the 767 in the Boeing camp, just as the A350 should keep current A330 customers in theirs. In that regard, both win, but Boeing is in the position to start poaching Airbus customers with the 7E7 just as Airbus did with Boeing customers using the A330.

In the end, there is enough marketshare available for both. I don't expect the 7E7 to sweep the sky of A330s anymore then I expect the A380 to sweep the skies of 777s - or 747s, for that matter.