Rumor mill has consistently had Amazon aiming low, but more importantly they plan to offer more than competitors at that lower price, to a built-in audience that likes the company and its content offerings at just the moment (Ice Cream Sandwich) when Android for tablets reaches maturity (timing was how the then dying Motorola manged to compete with the 800lb gorilla HTC for a time).
Most android tablets to date have been generic. The transformer and thrive stand out a little, but they both could have done better. Notion Ink's Adam stands out more with a PQ option, but has a name no one can trust and the PQ tech apparently wasn't mature either. Some of tablet makers over-relied on carriers to make sales as if tablet sales channels would be the same as phone sales channels. Some used andriod 2.x and all the while, tablet support in the market was limited and confusing. All have charged too much, other than perhaps B&N.
I'm not sure Amazon will succeed, but they certainly appear to be targeting a lot of converging sweet spots, and the HP fire sale demand almost confirms that if Amazon builds the right feature/price balance, the customers will come.