It concerns anyone invested in apple (whether financially or emotionally, although emotionally is arguably foolish)
There's a strong likelihood that it will be a poor product that will damage the brand.
Can you explain how you arrived at this conclusion? Judging by Apple's recent history, they're not in a habit of releasing poorly made products that damage their brand.
People will buy the mini arguing its cheaper and its the same as the iPad, and they simply don't need bigger because bigger is just a luxury.
They won't consider that the resolution, target size, etc into their buying and if it results in poorer user experience, they will write off the iPad as well rather than realizing they got what they paid for.
So, do people consider laptops over 12" a luxury, or do they get them based on their needs? Since you don't see people in droves, rushing to buy netbooks, I'd guess the latter. There's no reason why Apple shouldn't be able to appropriately fit the smaller iPad into their lineup.
Also, how can you possibly know whether a 7.xx sized interface "results in poorer user experience" when (I'm making a wild guess here) you've never used iOS on a device that size.
Apple won't make developers develop for a middle tablet on top of the iPad and iPhone. So it will scale. But making it so it performs as well to scale is a tightrope act. There's plenty of targets on my iPad screen that are frustratingly small as it is.
Firstly there's no way of telling what Apple will or will not do. We don't know how Apple plans to market the device, or how they're going to price it, or what features will be included/omitted in the device. Like I said earlier, I have no doubt in my mind that if Apple truly plans on releasing such device, they will have a way to make it fit into the lineup.
Secondly, if the device is to have 1024x768 resolution, 100% of the iPad apps will run scale perfectly. Sure, some interface elements will become smaller, but that doesn't necessarily mean that they'll be unusable. We'll have to wait and see.
