This thread is a good illustration of why the iPad is exactly the size it is. Some would like it a bit larger, some a bit smaller, but probably everyone on this thread purchased the current iPad.
From Apple's perspective that's perfect. Unless there is a substantial market niche that won't purchase the current size, Apple is better off saving the design, tooling, manufacturing, and inventory costs associated with adding other form factors.
If you consider the various factors involved, Apple did a brilliant job of selecting the size of the iPad. A 7" tablet is too large to carry in a pocket but bit too small to be easily viewed by a substantial portion of the market. (iPads sell VERY well to the 50+ crowd.)
A larger iPad would not only make it more unwieldy but make 2x iPod/iPhone apps less appealing. And its that vast library of such apps that contributes heavily to the iPad's huge app store inventory. Furthermore, a larger iPad screen would prompt more pressure for running multiple apps simultaneously, something that Apple would rather avoid for a number of reasons.
All in all, Apple chose a compromise in the hope of hitting (as another poster put it) the "sweet spot" among consumers. They were right on it appears. And I strongly suspect that a LOT of consumer research went into that choice.