I’ve been mulling this a fair bit, and have a few insights on the matter.
Although an 8GB iOS device has around a mere 5GB of usable storage, the lower price point and smaller form factor would make a smaller iPad very appealing for browsing the web and streaming media.
And if the display is “only” 1024×768, it would make sense to price the low end a bit below the new iPod Touch.
But one thing’s certain – the 7” form factor is pretty much ideal for entertainment, but questionably so for input…
Either way, let’s wait and see how this pans out, rumors being what they are.