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This strikes me as a good idea. It's essentially selling the iPod touch functionality at a range of different screen sizes. I'd expect such an early release of the smaller model to be pretty similar in capability to the current iPad, with a simultaneous update for Facetime etc. next year at both size points. It will be interesting to see what size suits people most. I found the iPad a bit heavy in its current incarnation, but a smaller one might be a better weight/size trade-off for me.
It will be interesting to see whether we get an iPod Touch 4 with Facetime this Autumn.
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