I'm not so sure you're going to see an iPad mini with a higher PPI than an iPad. And I think they made clear that they think there's value in being able to use all the standard iPad apps, so you're unlikely to get some weird in-between resolution just for the sake of matching PPI. I think the current positioning, higher than the 'legacy' iPad but not quite as high as the retina iPads, is a sweet spot you'll see stick around for a while.
Not to mention I see it as a good "budget" model. Yes it's not cheap in any way but remember when they released the iPod Shuffle to be the "iPod" for everyone? Basically it's for low end user so that "everyone" can have one.
I don't mean this as a negative thing. Just from a marketing stand point.
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I can imagine all those workers ripping the insides out of an old dated iPad 2 and putting them into the new iPad mini......Job Done!
You forgot the middle step of putting them under the shrink ray first... and then adding in a new Wifi/BT chip, 2 new cameras, new lightning port, thinner screen... actually it's probably all new parts except for the A5 processor...