I don't see why more don't think this is possible...obviously Apple is concerned about Kindle Fire, and the rest of the cheap tablets...Apple needs to compete in this space...ignoring it would be foolish
Apple doesnt need to worry about devices that dont come close to doing what an iPad does. Someone who buys a Fire and thinks theyre getting an iPad are not going to be repeat Fire customers. Theyre probably going to get an iPad! (If, on the other hand, they just want a color e-reader for cheap, then its a good option. One that Apple is happy to let Amazon take the loss on!)
What Apple MAY need to worry about is limited supplies on the iPad 10 display panels. If demand exceeds that, then offering an 8" panel size might allow Apple to sell more iPads. If, and only if, those smaller panels can be made in addition to (not instead of) the 10 units. In different facilities, say.