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But it is one thing to create a size 'customers desire' and another to do so without giving developers Android sized headaches. What developers do not need is another form factor to deal with. And what customers don't need is to sit around waiting for mini-compatible apps to come out. How will it run existing apps?
Speculation is that it is 1024x768 (just like iPad1/2) but that would not put it in 'retina' display territory, which is where Apple is setting the bar now. And the iPad UI is scaled quite deliberately to the size of an 'average' human fingertip, which is not going to magically shrink to 70% of its current value. A 'shrunken' iPad interface may thus not work as well and will at least not be 'optimal'.
On the other hand, who wants to run iPhone apps on any iPad?
If a third form factor is in the works, then only selected developers know about it now, and perhaps there will have to be another section in the iTunes App Store, and all of that. It will mean a lot of churn at a time when Android may finally be putting some of its fragmentation issues behind it and gaining traction, as well as another Microsoft tablet iteration. Much of the appeal (and profitability) of iOS (and of Apple products generally) is that the choices are deliberately limited. Do they really want to mess with success? OTOH, maybe they need to risk doing so.
If they do go ahead with a 7" I agree with SeaKing that it doesn't have to compete on price. Macbook Air is what Apple did instead of a netbook, and reflects their product and profit-seeking philosophy perfectly.
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