First, I want to say that I agree with Steve Jobs that the 7 inch is too small to have the same user experience as the current iPad.
That being said I am looking at Samsung's claims of selling 1,000,000 Tabs already. In trying to analyze the buy decision of their customers, I have to say it must be based on the portability more than anything else. It can't be a value decision based on the current prices. It hard to think that they feel the performance and usability is better than the iPad unless they are so caught up with their Android phones. So, with the size being that strong of a decision factor wouldn't Apple be smart to just come out a with a IPad mini? They already probably have the design done so it would be just a matter of tooling up. This could also be the low price unit that is sold with less profit allowing Apple to retain their high profit on their " flagship" iPad. The key is they would throw a major wrench into the tablet market with the goal of delaying the competition from building up momentum. With the decent success of the Tab you already have Acer who was ready last year of staying out of the tablet market reverse their decision and plans to come in this coming year. I know it's early and with new tablet coming out the competition will probably canobolize themselves but if this many are sold they can build on that.