In my opinion, a mobile device should have a keyboard big enough for me to type using ten fingers, or it should fit in my pocket. Using something in between baffles me.
I suspect google knows it can't reach that nice price point with a 10" screen and knows the 7" market is ripe for stealing from Amazon. Its sad that its conceded the 10" market. I'd love a $299 10" google tablet to replace my aging Transformer.
The really awful part of this situation is that perhaps Google is ashamed at the lack of apps that can make use of a 10" screen. A lot of my apps are simply phone apps that look terrible on my tablet.
Its a shame there's no real pricing on the MS Surface yet. I could really see myself with one of those if they're $499 or less. I'd rather spend $499 on a super tablet than $199 on a media consumption device with little storage and not a lot of ports.
Google is gunning for the Fire/Kindle crowd here and I think its going to work. I prefer reading on an LCD where I can control the color scheme and where I can dip into using a proper browser now and again. e-ink is more than a bit over-rated and the Fire is just poorly engineered.
Like you, I'm pretty ambivalent on the 7" format, but that isn't stopping people from buying Kindle Fires...
It's large enough to read on comfortably, and about the weight of a similarly sized high quality book, meaning that it is light enough to handle for a long time without trouble. It carries by hand very easily, and just doesn't get in my way.
The iPad (v3, btw), in contrast, is bulky and heavy to carry around and hold. The keyboard still isn't big enough to touch type on comfortably, and I am not able to produce content on it with a reasonable speed (after 1mo of use, I gave it to my wife). When I need to create, I usually ended up using my notebook computer, due to the size limitations and difficulty of using the keyboard while holding the device anyways.
In the end, the Fire is the perfect size for portable media consumption, and the addition of an unlocked (and high quality) operating system makes this new offering by Google a no brainer for me.
The iPad virtual keyboard is the same size as the keyboards on all MacBooks. Size is not why you're unable to type fast on the iPad.
I think typing with ten fingers and the overall typing experience is surprisingly unimportant for many people.
# People have widely reported fatigue with the iPad (e.g. Ars). I don't know that the Google 7" device is any lighter, but I assume it is the case.