I don't see why the size would be a big deal, the whole notion that 7 is too small makes no sense considering there's an iPhone.
Obviously they'd have to find the right way to do interface and apps, seems like some iPad apps would be fine while others would be better taking the iPhone version and scaling up. And there are many things like web browsers that scale easily to any size.
With Kindle Fire selling millions, you can be sure Apple is taking a serious look at the size and the price point. Although if they do keep the iPad 2 and drop the price enough ($349 would put a serious dent in Fire sales), people might be happy enough to buy that and be fine with the size.
Obviously they'd have to find the right way to do interface and apps, seems like some iPad apps would be fine while others would be better taking the iPhone version and scaling up. And there are many things like web browsers that scale easily to any size.
With Kindle Fire selling millions, you can be sure Apple is taking a serious look at the size and the price point. Although if they do keep the iPad 2 and drop the price enough ($349 would put a serious dent in Fire sales), people might be happy enough to buy that and be fine with the size.