Do people care that much for hardware specs like quad core tegra 3? The ipad 2 still runs very fast, has a bigger screen, and better battery life. You are right regarding "bang for buck" though, but in the bang for buck considerations software plays a great deal. Anyway, I do foresee this beeing rather successful. By the time the surface comes to market, almost everyone will already have tablets. I'm concerned for Microsoft.
I don't think hardware is a huge deal for the average buying public. The only thing that matters to them is that it continually runs smoothly. It is a selling point for me, though. A Tegra 3 at that price point is pretty appealing.
Screen size is an entirely different matter. I know quite a few people who think the iPad is a little too big and a little too heavy for what they intend on using it for. For them, a 7" device at nearly half the price would be a much more tempting buy.