Interesting, but if the iPad mini turns out to be a real product, I don’t think it will about selling a tweener iOS device to existing Apple customers. I think it would be about getting new customers into the iOS ecosystem for $249.
There is a market for smaller tablets, no matter what Steve Jobs might have said two years ago. The iPad owns about 70% of the total tablet market — and a whopping 95% of the ten-inch space. Only by selling cheaper, smaller models has Android been able to compete at all. To me it makes little sense for Apple to continue ceding all those sales by default.