7.85" is really pushing the 8" mark. It's not .85 inches of extra screen space, it's 1.7" of total space. (I think a lot of people forget that screens are measured on the diagonal.) That extra bit of space makes quite a huge difference. When Jobs said Apple would never do a 7" tablet, he wouldn't actually have been lying.
I find full sized tablets a bit cumbersome after a short while. I find 7" tablets are a big too small. (Especially for magazines.) I'd have to see it in person, but 7.85" might just be hitting that sweet spot on a smaller tablet. And if Apple can ditch the huge amounts of ugly bezel most 7" have, even better.
What is it going to be like? A large iPod touch or a smallish tablet?
To each his own i guess. I reserve judgement until I try it out myself.
The same has been and can be said for the first 3 iPads. There isn't much differentiation of IOS devices except for screen size. (Specs sure, but those specs generally match up to the display being driven.)
An iPad IS just a big iPod touch. The iPhone? Well, it's an iPod touch that makes phone calls.
And this is why it works so well... several device options, one seamless user experience with the same OS, apps, features, etc. Size is a preference.
Still isn't going to happen, and if it does Apple will only price themselves out of the market with it.
And I would also call BS on the idea of it being made on a different production line in a different country to the current iPad and iPhones etc!!
I have a feeling this IS going to happen. The bulk of all tablets sold that aren't iPads are 7" tablets. Part of that is the price, and part of that is preference. Apple would be foolish to let that market share go... because it's not just the hardware, it's the echo system they lose out on too. For ever Kindle Fire or Nexus 7 someone buys, Apple doesn't just lose a hardware sales, they lose residual income from apps and content purchases.
Manufacturing has evolved... past the point of human assembly to mechanical assembly. There's still the human element, but you can't just slap a whole new device onto the same line that's been custom tailored to make another product. It's more likely than not they'd need an entire new production line, because all the other products are still in mass production. A mini iPad wouldn't be replacing anything. And this would make the new factories that were built in South America only make more sense. Everyone was skeptical last year that they really needed a factory in Brazil just for more iPhone production. I don't know why you find this hard to believe? Apple is also under fire over chinese manufacturing. Would be good PR too.