Did you know that this portion of the Apple's Human UI Guideline predates the iPad? In other words, it was created when only iPhone was shipping?
You are extrapolating the Apple's guideline into something it is not, and it doesn't state. You certainly have a right to interpret this guideline any way you want, but your interpretation is just your opinion.. nothing more.
It is not my opinion. It is a fact that the button sizes on an iPad 9.7 are .33". They are BIGGER than an iPhone's and it is a fact as to what Apple bases its minimum UI element sizes on:
1. The distance at which the device is held from your face.
2. The surface area of the device.
Apple redesigned iOS's UI and core Apps custom for the iPad to account for these variables and this is the physical size they ended up with.
I said nothing in support of others or your logic. The only thing I will say - your claims related to "un-useability" of 7.85" iPad are not backed up by any real practical experience or usability testing (and no photoshopping down screenshots does not qualify).
You are well entitled to your opinions - but you are confusing them with facts.
No, you are confused, and yes, photoshopping screen sizes does qualify.
The problems with an iPad Mini are as follows, and this is fact:
1. Having the same button sizes as an iPhone would not account for the increased distance the device would be held from the face and the increased surface area. The larger the display, the farther it's held from the face and the larger the hit targets need to be to reduce errors. Therefore, the argument that scaling down a 1024x768 screen to a 7.85" screen where no UI changes would need to be made... therefore, not fragmentation, is debunked.
2. All elements on scaled down Apps get closer together. Imagine reading a PDF on a full size iPad then reading it on a tweener. The difference is marked. It's not enough to just scale down Apps and not do anything. The form factor demands UI changes.
3. At 163 DPI, which is what everyone is proposing, the device would not qualify as a Retina display. Apple would never release a brand new product... a mobile product, not sporting a Retina display. It would need an extra 100 ppi to qualify as a Retina display. Therefore, the argument of the device being 163 DPI with no need to change UIs is debunked because Apple would never release a Mini with 163 dpi. It wouldn't be Retina.
4. The form factor in between a smartphone and an iPad has no market. It's a failed enterprise and this has been demonstrated in the market. Even if Apple makes it, it'll fail because nobody needs it.
Steve Jobs said it best:
Apple has done extensive user testing on user interfaces over many years, and we really understand this stuff. There are clear limits of how close you can physically place elements on a touchscreen before users cannot reliably tap, flick or pinch them. This is one of the key reasons we think the 10-inch screen size is the minimum size required to create great tablet apps.
But then people think Apple would actually just let people scale down their Apps to fit smaller pixels cramped into a 7.85" screen without doing anything to the interfaces. It's absurd and doesn't make any sense. And since the category is dead and would result in fragmentation it makes even less sense.
Tweeners must have their UIs changed and tweaked to account for their size.