This is never going to happen, and I will tell you why. What would they price it at? The 16gb wifi model is $499 as it is. That means that the 7" model could not be prices higher than $399 with similar storage and the 5" model would have to be priced at $299 or $349. The 5 inch model would pretty much destroy iPod touch sales, unless it was meant to replace the iPod touch, which seams unlikely. The 7" model would be in a weird limbo where it would be noticeably smaller than the original iPad, yet closely priced. Then you get into different storage options, and it turns into a giant cluster F. A 7" 64 GB would be similar in price to a 10" 32 GB?
It would be way too complicated and messy for me to believe that Apple would allow it. Not going to happen. Now if they replaced the iPod Touch with a 5" tablety thing, and then offered an iPad mini in the 7" model, that COULD work, but would still be messy.