Apple's smallest portable just came out - the iPhone. Why would they create a 10" ultraportable? I haven't seen a single one used out in public. Ultraportables are a great idea and so is the tablet pc, but neither are practical, thus, no large scale markets. No markets, no dinero. I truly believe the iPhone is Apple's entry in both the cell phone, pda, and ultraportable markets. Look at all the rumors that lead up to the iPhone release. Nearly every filing is a feature that you now see in the iPhone.
Plus, what peripherals would be available for such a device. Are all the plugs and cord inputs that small - not everything is usb, ya know. Also, you would have to plug everything in just to use it - external drives, keyboards, monitors - who needs the hassle.
I think they are going to take what they learned from the iPhone and AppleTV and build on compatibility and consistency with those items.