Many anti-mini people make the same arguments as you. Nobody will want it, and it will hurt iPad3 sales. You can't have it both ways, saying simultaneously that it won't sell, and yet sales will hurt iPad3.
In any case, there are people (like me) who don't have an iPad at all and are waiting for something smaller or less expensive. If we buy an iPad Mini, no iPad3 sales are hurt. In fact, an iPad sale is made that wouldn't otherwise have been, not to mention additional revenue from iTunes purchases of iPad apps.
These same, tired anti-mini arguments were made for the MacBook Air. It's going to be priced too close to a real laptop! The screen size is too small! No optical drive! Not enough ports! They all missed two points:
(1) There are people who value lightweight portability higher than the features that were reduced.
(2) It's not about what "most people" want. There are billions of people in the world, all with different wants and needs. You only have to appeal to a tiny fraction of them in order to sell millions of units.
The 10" iPad might be WAY, WAY better for you than a 7". But I'm not you, and nobody else is either.