I don't think the Kindle Fire is really a fair comparison to the IPad - to me they seem to be aimed at a different market. It's a bit like comparing a Nikon SLR to the cheap digital camera you take on holidays - they both have a niche market (and having one doesn't rule out owning the other). I would see the real competition for the IPad being the new Asus Transformer Prime - and aimed at the same market.
I do think there is a HUGE market for a cheap no-frills tablet with wi-fi connection and bookreader software. Something that will show You Tube clips, play MP3s, let you read the news and books and catch up on Facebook. At about $200 this would sell mega-millions. I mean, we'd all like to drive the Rolls or the Merc all the time, but most of us have to make do with the 4 cylinder commuter car!