Those were the EXACT words I said when the first iPad was announced.
Boy, was I wrong!
The difference here is that with a iPad (that upscaled iPod Touch) anyone who was actually using an iPod Touch (or iPhone) for more then just "games" and "talking" knew exactly what a larger screen would mean for usability.
With a Mini 7-inchish that's less clear. What is hard to say at this point is if the 7-inch android boom is due to physical size or price point. My bet is on price point, people who have the money get iPads. People who want a tablet but don't feel they have the money get Fires, and Nooks, and Nexuses. Which just happen to be smaller screens because that's just cheaper to make.
Lots of correlation in the 7-inch market, not a lot of clear causation.
Price is going to be the issue. I kinda winced when they left the iPod Touch at 299 instead of say 249 or even 229. 299 on an iPod Touch to 499 on a full sized iPad is not a lot of wiggle room. A 399 iPad Mini at a base 16 GB is not going entice people away from the "cheaper" Android offerings. At 349 or 329, or very unlikely 299, its kinda stomping on the iPod Touch a bit hard.
Granted I love the Touch, it's the right size (even the new one) to be a non-celluar all-in-one PDA/Media device which is kinda missing in the market, but a 349 iPad Mini is going to get the "I can get significantly bigger screen for watching video and reading paper-backs for 50 more dollars" effect.
Apple really needed to bring the iPod Touch down bellow 300 dollars base and take a profit hit for a "gateway" iOS product. 249 base iPod Touch, that would have give a good wiggle room for an iPad Mini.