Not that Apple has been concerned playing a race to the bottom, but I remember prices on the original iPad were supposed to be approaching $999 and Apple was like, "BLAM, $499!".
Either that will happen again, or this thing might have a retina screen. Otherwise, they are conceding low-end of the 7" market.
Apple fed that story to the Wall Street Journal.
Anyway, 8GB at any price was always a non-starter, especially since iPads have never had 8GB of RAM and now we have to deal with 1080p content and iPad apps with Retina artwork. You might have said that perhaps an 8GB model could exist for education, but iBooks textbooks are quite hefty, with many weighing in at 2-3GB each.