Why a bigger iPhone and not a smaller macbook? Unless your job is almost 100% read-bound (or sketching, I guess) I can't see this being a good replacement for "doing work"...
I remember after first getting my iPhone 2g, and playing with it for a day straight, when I went back to my laptop I wanted to manipulate the UI by touching the screen. When I say "wanted" I mean I uncousciously reached for the screen on a couple of occasions. I got over that quickly, but it made me consider what this form factor would be good for and whether it would sell.
I agree that this machine won't replace the laptop as a work machine. I do think that it may be a better solution, from a UI standpoint, than the current netbooks on the market. Have you seen people at coffee shops typing on those things? I know it will be better than a netbook in bed or while laying on a couch, which is were I find myself using my iPhone and not my laptop.
Also, $700 isn't that much when you consider that the Kindle is $300 and used to be $500. Think how much more you will be able to do on an iTablet, or whatever you want to call it.
Very very true.
The tablet is probably meant for surfing websites, sending emails (take a pick between built-in MobileMail, GMail app, or GMail through Safari), SaaS website apps, and most likely some games.
Think Crunchpad competitor, not netbook or full sized laptop competitor.