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You summarized it correctly. In so many ways the kindle could be much more awesome, but Amazon doesn't finish out of the OS. Browser, audio, simple apps, etc.
My assumption is that Amazon loses money on every Kindle sold, so they are paranoid that if they make any use other than reading books too functional people will buy a Kindle and not buy books. That is of course short sighted, you want these to be so useful everyone will have one.
But as a developer myself I have to assume management just said no and not just that it didn't occur to them that people might want to listen to audio books while reading along.
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