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The pictures do make it look big. I expect this is the combination of a few things; first, the white color just makes it look bigger. Second, the buttons no longer break up the bezel area the way they did on the K1. Third, it actually is big; it's the same width as the K1 but it's half an inch taller, mostly around the keyboard area where the keys are also smaller looking (accentuating the size issue).
That makes it more than an inch taller than the Sony Readers and also wider, though now the Kindle is pretty much the same thickness.
My latest theory is that Amazon probably could have made the Kindle a little more compact, but chose not to because the bezel and area around the keyboard make the Kindle 2 much more comfortable to hold. Whether they can market that as a feature I don't know - because this is a device that people order over the internet (at this point) rather than pick up in a store, it's hard to market the feel of the device instead of the looks.
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