I've wanted a 7" iPad ever since the original came out. I'm not the only one. And no, price has nothing to do with it. It's because I prefer the smaller form factor. The only reason that the 7" tablet market hasn't got very big yet is that all those tablets have been crap. With the Nexus 7, that changes.
Not only is it the first non-Apple tablet to actually look decent, but now Google has also finally got Android good enough to actually give iOS a serious run for it's money. Just drop your prejudice for a second and give Jelly Bean a try. It's just as snappy as iOS 5 - a first for Android. And the Android market isn't full of just crap anymore. I've always laughed at Android but after checking out a Galaxy Nexus with Jelly Bean, suddenly the iOS experience on my iPhone 4S is actually starting to feel a bit cramped and boring.
I've been a hardcore Apple fanboy since my LC 475, almost never touched an Android device. Now I'm definitely getting a Nexus 7 and considering the next Nexus phone or even the Galaxy Nexus over the next iPhone. I think this is the real danger for Apple here - the Nexus 7 being an entry point into the Android ecosystem; an OS which is just now becoming a real, viable alternative to iOS.
It's bound to happen at least to some extent. Look at the rave reviews the Nexus 7 is getting and the buzz it's creating. So Apple has to react now in order to maintain iOS' strong position for the future. They have to offer an alternative to the Nexus 7. I'm sure they've had a 7-8" iPad pretty much planned out and ready to build for a long time, but held back on it because it simply wasn't necessary to make it a reality yet, and to make sure sales for the fullsize iPad were maximized. Now the time has come.
So it'd be far from illogical if these rumors were actually true. Personally I'm guessing a 7,XX" iPad Mini announced before the end of the year, at $299 cheapest version (no, Apple doesn't need to compete with the Nexus 7's pricepoint). But - even though it's the iPad I've always wanted, I'm honestly not so sure I'll feel the need to get one...