I believe it is an aesthetic size based on the feel of holding the Kindle as we are conditioned to hold books. But I am very fond of large art books, more than impressed than watching art on a Large LCD. Something like William Blake with art would need a 15 or more inch Kindle, but it would still be in black and white. If regular people were more into larger books I am sure the Kindle would take note....bigger may not be better....can you imagine going to a cinema to read a book that is projected to a big screen, you would much prefer going to the cinema to watch a film than see giant sentences projected.
Though maybe in 200 years we (our great grand children) would see Kindles that are multi-media and combine reading a novel with sound and video effects with each page turn which would suggest a much larger Kindle in the market.