The major factor in this is +price+.
I dont believe the form factor is all that important to people buying a KF or N7 (7 still wont fit in a pocket, its only slightly more portable), its that you can buy (especially with the Nexus 7) a very nice tablet product for $200-250.
...and I dont see an Apple 7-8 tablet, if it follows the current design model, being _that_ much cheaper. An iPad 2 is now $399 retail, 16GB, WiFi only, and Id figure the internals on a iPad Mini would be the same, and the reduction in size could even wind up costing more.
Apple loves to tout battery life across a family of products, so a 7.xx tablet with 10 hours of battery life (assuming an A5, 1024x768 display) might have to use a more costly display or battery tech[?] On the other hand, they might decide to cut costs on the materials: maybe go to cheaper plastic chassis? (that would have a positive side effect of being lighter, which is a attribute the small tablet manufacturers carp about).
I think the magic price point is $299 (or less). So maybe an 8GB model for $299 (and the upgrade to 16GB for $50, to $349), plus if cell/3G is an option, +$ along the lines of the full sized iPad models.