I have a MBA and I still have a need for an iPad. Even if Apple gave away the MBA for free, I would still also buy an iPad.
The iPad does several things better than any laptop on the market:
1. Browse the web
2. Read books and magazines
3. Watch videos
4. Browse and share photos
5. Games
Note that none of these things require extensive use of a keyboard. Besides doing everything better, it is also more portable/convenient to carry around and use. Multi-touch is also quicker for most tasks than a mouse/trackpad.
The ONLY advantage a laptop has at this point is for typing long documents or code.
I'm blown away by reading things like this. Touching a link is no better than gesturing with my finger on my silky smooth MBP touchpad and laying down a gentle tap. It does the same thing. It's not any better. In the time you raised a finger to touch that link you want to visit, I navigated my finger to point my cursor and tapped. Same. Exact. Thing. I think people are just giddy about a different type of browsing experience and therefore they get too worked up about it. Or maybe Apple's marketing and code words like "revolutionary" are stronger than I think.
If you are serious about reading ebooks you'll still carry a Nook/Kindle. Yes, having one less device to bring out is convenient, but the advantages to the devices I listed are numerous. And if the iPad is a great ereader for you, congrats.
Watch videos? I'll take a larger widescreen over a 4:3 aspect ratio screen any day.
I will admit that browsing photos on the iPad is a pleasure, but certainly not a strong enough advantage where someone would opt for an iPad because the photo element is truly that much better than a laptop.
I don't play games so that's a moot point for me personally.
As for the OP was originally asking. I think the MBA could indeed be better than an iPad. You'd have to lower the price of course to really let them compete. And Apple will never let a device running Snow Leopard come close to a similar price point compared to what the iPad runs as an OS.
Apple did something brilliant. They know a fair share of their consumer base are very casual computer users. And by that I mean they buy a laptop and use it for the most basic things (web, email, media consumption). Now, I could make a case for all those being somewhat crippled on the iPad if I really wanted to (no Flash, no keyboard, locked in to iTunes purchases), but Apple knows that people want to be satisfied on basic levels. The iPad is really not a computer. It's a device meant to consume media. And Apple is especially excited because they will be making so much money via iTunes after the initial purchase of the iPad (movie and tv rentals and purchases, ebooks, newspapers, games, pay apps, etc). And you rest assured that the newspapers and magazine businesses are praying that it will revive their industries (personally I don't think it will, but I don't want to get into that).
I love my MBP. Love it. But if I had the money I'd get a MBA for my travels. I would never get an iPad (too many sacrifices plus shudder at the idea of having to purchase so much media from iTunes). I have my DVD collection ripped and loaded onto my MBP. Would never want to have to convert those files to ones that could play on the iPad too.
Last thought: If the MBA was $800 it would be an enormous success. People would say "oh, it's super portable and very fairly priced." But Apple can't do it. We the consumer are still paying a premium to have such a fully featured computer in such a lightweight piece of hardware. It's a shame, but that's how the game is played for now. What would be interesting is if you offered someone an iPad for $500 (the current base model) and a MBA for $800 (the current base model) and see which one they'd go for. A lot of you may say the iPad because of the current hype plus they might not need all the features of the MBA. But I bet a lot would still opt for the MBA because they know how much more convenient the laptop still is at the end of the day.