See, that's the problem with a stripped-down notebook. I highly doubt there'll be expandable RAM on this notebook, and I'm not even sure if there will be more than one RAM slot.
Almost all netbooks are coming to market with expandable RAM, usually just one slot (so typical max 2 GB). That's for $400+ machines. For Apple to get a slice of the market at $739 I think a 1 GB soldered/one socket/3 GB max configuration is perfect.
This notebook's losing a bunch of features, and if you can't even run anything higher than iPhoto, why not just use the iPhone OS and go full mini-tablet? You won't be using mid-to-high-end apps or do heavy multitasking either way. Plus, it'll be cheaper, and most likely run better too (less bloat).
Apple could leave those applications on the machine actually, and they'd work OK. I'm mainly suggesting it for product differentiation, and people could buy them even if they aren't preloaded.
Why not just an iPhone? Because 10+ million buyers by 2012 will be buying machines in this category, and nearly 100% of those buyers will not also buy Apple. Those $400+ machines are going to eat away at MacBook (base model) and MBA sales. A lot of netbooks are rather nice.
And I'm assuming it's easier and better to build the iPhone OS up than to strip Mac OS X down and still maintain application compatibility.
Nothing about stripping here. It's full Leopard (and later Snow Leopard). Just (maybe) a couple binary settings flipped to save a little CPU by default and an "iLife Net" preload (mainly for differentiation), that's all. Same reason for preloading iWork on the Pros (and possibly MBA), for differentiating the product segments. MBN/MB buyers can still buy iWork if they want it.
By the way, today Leopard is running on gobs of 1024x768 resolution machines. 1120x700 is wonderful and way better than its competitors, which seem to be consolidating at 1024x600. Also 1120x700 is less "squinty" than a 1280x800 (MacBook/MBA) display would be at 11 inches. Now this is going to depend on what parts Apple can get and at what price. The volumes of 10 inch 1024x600 displays are going to be huge, and that's tempting but I think inappropriate for a $739 Apple machine.
We should also keep in mind places like Asia. Apple needs a product like the MBN for Japan (which favors small and light but high quality machines; they would gravitate toward the high-end MBN and to some extent the MBA) and price sensitive countries like China and India (base MBN). Apple's marketshare in Asia is not great, and that's where there are some growth opportunities.