I have no idea what Amazon were shooting for with the Fire. All I know is that many MacRumors members believe that they were going after the iPod touch given their similar price points. Look at threads on this subject in the iPad and iPod touch forums.
That or media seem to think the fire was going head to head with the iPad. We have Apple fanboys here who missed the boat completely. Hell when the iPad came out there was the iPad was a kindle killer and failed to understand that the iPad and kindle were going after two very different markets. People have both the kindle and tablet report time and time again for an ereader the kindle is by far better than the backlit tablets like the iPad. That same group of people missed the boat on understanding what the Kindle Fire is.
Kindle Fire was designed to be something that was good for consuming media. That being reading, or watching movies and that limited area in many ways it does it as good and in some ways better than the iPad for 1/2 the price and lighter weight.
Putting them head to head was the wrong way to look at it. Apple fanboys do it to make themselves feel good but miss the boat on it. Kindle Fire is in a different class. iPad more goes head to head with things like the Galaxy Tab 10.1, Xoom, Transformers ect.
If they where not suing with Crapents then maybe but Apple has been sueing with crapents that should NEVER of been granted in the first place. Example of crapents Apple has used - Slide to unlock, pinch to zoom, the flat tablet design ect. They are crapents and look at the results, time and time again the judge threw them out.
One US judge called Apple on its BS and flat out said that this was not about protecting IP but about delaying competition from entering. The time to took Apple to even bother starting to sue until now kind of shows that it was when it saw a real threat to its market.