It's true, it's not a total loss if the iPad dominates yet the kindle app is popular, but it's not the ideal scenario.
It's proven that "hardcore" gamers buy a lot more games than casual gamers, and that they are far easier to sell related merchandise and subscription to.
Yet, the success of the Wii has proven that the sheer size of the casual demographic more than makes up for the fact that they buy fewer of your products.
There will always be the hardcore, voracious readers, but I'm not convinced that it's not worthwhile to go after the casual readers who might only read 2-3 books in a whole year.
Second, I suspect even the casual readers would read less.
People who get the kindle are more likely to read a lot, whereas people who get the ipad (as opposed to the kindle) are more likely to read fairly casually. (You get the ipad because you want the internet and all of the games/apps).
I'm not really sure that it holds that people will read less on their backlit device than on a normal kindle. I'm a software developer and I spend all day staring at a computer screen (8+ hours). I take periodic breaks, and yes, it is bad on my eyes, but the back-lighting of the screen isn't enough to stop me from doing it (I only really notice at my yearly optometrist appointment).
If the iPad app allowed you to pick some mellower colors for the text/background, that would probably go a long way towards making the device usable. Black on Grey (or dkgreen on black!) is a lot easier to look at prolonged than black on white, for example.