I think a Mini Tablet is inevitable.
Few of the reasons:
* People love browsing Safari on the iPhone but want it to be slightly bigger
* Netbooks are very popular
* Artists, Students, Medical Staff & other niche markets are crying for one
* It has a lust factor
* Apple keep on refining the OS X UI for Touch interfaces (Stacks, Icon Previews, CoverFlow etc)
* Lack of Copy & Paste on iPhone (conspiracy theory)
* Ubiquitous Computing - Different Technology for different tasks
* It could work with your Desktop/Laptop as an Input Device
* I imagine the Japanese would start killing people to get one too
Form Factor:
1.5 times the size of the iPhone is the size of a small book.
This form factor is great for watching movies, digital books, browsing the web, playing games, document editing and sketching.
It could also be used for In-Car entertainment & Navigation, Presentations, Video conferencing and you could even route phone calls
and 3G data from your iPhone. WiFi and USB dongles would still be there.
I'm not sure running the full OS is a good idea or not (That said, Snow Leopard would be great on this device!!) but there could be some unique
ways to address tasks such as sketching/Photoshop work so you don't have to use intensive apps.
Apple could make a basic image editing app designed for MultiTouch. Have it export to .PSD and other popular formats. An Apple Pixelmator, bundled with iLife or iWork.
Final Thoughts:
It makes sense for Apple to increase their product lines slightly because of the dawn of ubiquitous computing. People are starting to mix and match technology
based upon their requirements. You don't always need to lug a Laptop around hence the multitude of attempts at creating smaller devices (MB Air, UMPC, Smart Phone, Tablet, Netbook).
As for price. I'm happy up to $999
PS: This could (unfortunately for some) kill the Mac Mini too and the idea of an iPhone Nano! The iPhone/iPod Touch in essence would become the Nano variation of this product line