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I think the K2 is going to be here for a long time. Assuming eink tech keeps pace, prices will slowly drop along with the occasional special discount. We'll see a 8.5x11 version of the K2 (not the K3).
The Kindle 3 will feature the next big thing in eink tech - either pure white with faster response or possibly color. We'll probably see a low-end version for $149 at about this point too (maybe less if they make it wifi).
The K1 was a proof of concept and beta unit. Other than a few tweaks, I think this is the version we'll have for the next few years.
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