I am waiting for the v1.1 device before buying, but I largely agree with you. What iRex should be doing is working on lowering the cost. If the iLiad cost (say) $550 then there is no way that the Amazon Kindle could compete at $500. I am not so sure about the $400-500 recent price estimate for the Kindle (it seems high to me for a 6" screen), but I'm sure there are price sensitive potential iLiad buyers.
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