1. I don't think it's reasonable to update the current iPad with the new dock connector. They have probably been planning this move for at least a year or so. If the new iPad was supposed to have the new dock connector, they would have released it with in when it came out .
2. There is a market for smaller tablets. Amazon recognized this. Google recognized this. Certainly Apple will recognize and capitalize on this as well. As the saying goes, if you build it people will come. The iPad mini will sell extremely well. One size does not fit all. It'll be cheaper and smaller, meaning the iPad, and by association the Apple ecosystem itself, will be opened to an entirely new market. And if rumors hold true that it'll release in October, it'll be on everyone's Christmas shopping lists.