I think the key points people are missing or are:
1) The iPad SET the standard for the large tablet market, it had and has no competition and as such Apple can charge anything they want, people will buy it.
2) The Kindle Fire HD and Nexus 7 have set the standard for the 7 inch market. The specs and price set the expectations of the market.
In that sense, Apple is now doing something it hasn't done in a long time, playing catch up and trying to beat an established market. If they want to do that, they need to match at least on screen, memory and processing power. IMHO an iPad 2 spec aka 1024x768 with 512 mb, 16 gb and an A5 at $399 is NOT going to cut it. YES people buy on reputation but they also buy on spec sheets. Also, if the iPad 2 cannot run all of iOS 6 and certainly may not run iOS7 (based on Apples history of dropping device support after a couple of years) then how can this new mini expect to be supported with the latest and greatest and not older iPad 2?
At $299 I think an iPad 2 speced mini would sell okay, at $399 no way IMHO.
Apple cannot deliver a dog with Apple lipstick and call it pretty, they need to compete this time on specs and price.
My feeling tells me Apple will drop the iPad 2 and slot the mini in that space at $399. If so, and if the specs are the same as an iPad 2, I think it will not sell as great as predicted. Now, if they can add Retina, 1 gb of ram and an A5x or A6, then for the price bump they may sell.
Even still when looking at a Nexus 7 at $249 with a great display, 1 gb of ram, quad core Tegra, etc it is hard to justify a $150 premium, ecosystem aside. The $199 Kindle HD is even harder to avoid.
It will be interesting to see if this happens, but if Apple wants to compete they need to bring it, and bring it right either with premium specs or a close price.