First, that Kindle killer isn't even close to existing.
Second, if you think $400 is steep for a device that has a 1 second refresh rate and a gray-scale screen, just wait until you see the price tag on 10" of full-color, touchscreen, iInk.
Third, and the real barrier to entry, Amazon has the bookstore to back it up. You can make the finest e-book reader in the world, but until you have "magic" wireless delivery and a limitless library to back it up, it's considerably more inconvenient to use than the Kindle.
Apple will not crack this space. It will have to be Google or Microsoft.