In what is most likely not going to be what Apple will do and that I was decribing in my flickr link, you do not lose the iPad apps catalog (that sure would be a big point in favor of a mini iPad over other similar products). Any app could be scaled down on any large enough resolution, and at a retina pixel density, the sea-of-pixels can smooth the scaling (see the alternate resolutions on the rMBP as an example).I don't think that the slight improvement from completely custom-made apps would be as beneficial as having full access to the existing library of thousands of iPad apps. I would assume that developers could always tweak their apps for the smaller screen if they feel that their interface it too cluttered or clumsy at the smaller size.
But, if devs tweaks their apps for the 7.85" screen as you say, wouldn't it worsen the experience on the 9.7"? If you have to enlarge some elements for the 7.85", don't you lose space for content, that you wouldn't have lost with only the 9.7"? It's a 50% larger (surface) screen, that's quite not negligible.
Maybe that's only edge cases
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