Netbooks just seem like a solution needing a problem to me. My kids have a netbook that I bought them for Christmas last year, but the greatly prefer using a regular sized computer or my iPad.
Potential solutions: Traditional laptop: nope. Probably < 4 hours battery, huge and heavy, overpowered for the task.
Phone: nope. screen is too small for comfortable web browsing, typing is slow.
Tablet: sure, this would work. But they're > $500, so that's a pretty solid commitment.
Netbook: yep! > 10 hour battery life, okay screen, perfect solution to "I want to browse the web on the go". They can be had for ~$200, so you can save hundreds by not going for a tablet.
Note: I own a netbook and love it (I have the new System76 Starling). I don't own a tablet. So maybe I'm biased.
Once again, Apple has the right answer. Go lighter and not too small. I think there was a powerful economic incentive to go with smaller screens for early netbooks because one could still deliver laptop-like functionality with cheaper hardware. The problem with this is that the user has to pay with less comfort. The smaller Unibody Air still has a comfortable keyboard and a screen larger than most netbooks.
To make a profit: sell something with components like the 11" Macbook Air, with just as much performance and a comparably slick design but just a tiny bit thicker, with a plastic body, even less weight, and over 8 hours of real-world battery life. There are currently 11" netbooks, but they seem to fall short in one or two of the above aspects. (HP Mini 311 is close.)
(Good battery life and a decent amount of processing power)
I think the netbook market is going to dwindle in the face of expanding tablet options.
I have always loved the idea of a tablet since I had one that was supposed to read my handwriting and automatically convert it to text (never really worked well). But they have a ways to go before I could use one instead of a netbook.
Now, if Santa is good to me this year...
I traveled around Asia for six months with one backpack's worth of gear. A full size laptop would have killed me, but that little 9" (8"?) netbook was perfect. Although, once I got back, I had no use for it, so I installed Ubuntu server on and got OpenVPN working on it.
So then the problem is what useless gadget to get your kids for Christmas.