Tim Bray is predicting a 7" iPad. I'm skeptical. As a former Kindle user and a current iPad user, I can understand the attraction of an option between the iPhone and the iPad: personally, I've often wished my iPad were a bit lighter. However I'd argue that, while reducing weight and reducing size are reasonable goals, I'd rather keep the size and reduce the weight - a paperback-sized reading device serves me as a reading device, period: smaller than an iPad, there is little advantage over my iPhone when it comes to producing anything like email. And a singly-purposed reading device isn't enough.
Beast of Burden
As a frequent traveler, I'm always looking for solutions that reduce my carry-on weight, or the number of devices I travel with, or the ease with which I can get through airport security. I don't think I can support the one-device model until I can get a phone-sized device that has some sort of expandable display (see Earth: The Final Conflict, or the 2005 Philips Readius prototype that went from cool roll-away to meh fold-away) - the phone in my pocket is used far too frequently, too casually, to imagine giving it up for an iPad in my pack. So the first device, the phone, is a given.
Can I get away with only two devices? For a long time I've lived that model, phone and laptop. Yearning for first-class room to open my laptop in the air, seeking outlets in the airports like some digital mosquito, accepting that I'm going to run out of power on long flights (DigEPlayer, anyone?) In transit, the iPad has generally solved those problems, and the laptop stays in my carry-on for 95% of the time on business trips. For personal trips, I've started leaving the laptop at home. I read on flights, manage email when appropriate, read documents, watch movies, play games. I never worry about space or battery or a separate tub in the security line. I'm down to three or even two devices. Using a 7" device, I would likely be schlepping my iPad along for games/photo editing/newsreading/email/web browsing/other. So now I take three devices on personal trips, four devices on business trips? Not likely.
Precision-Targeted or MIRVs
As a developer, I appreciate the limited form factors targeted by iOS. I can fine-tune my app to either or both displays, and realize maximum quality of user experience. Granted, a Retina-displayed iPad may throw a resolution curve into the mix, but I can deal with that just as I adapted to the iPhone 4. But supporting essentially two devices is viscerally different from three, or more. The cost, time/effort-wise, of addressing 3+ devices means I'll start considering ways to cut corners: compromises in the UX, common elements that are "good enough". I encounter the issues, and compromises, faced by web developers and browser/display compatibility. I run across the fragmentation issues faced by the Android community (the same issues faced, and never really addressed, by the Java community more than 10 years ago). While I think WebKit is an excellent tool under the right circumstances, it is not a universal hammer, but I'm starting to see it being proposed often as such, to mitigate platform porting and time to market. In those cases the UX almost invariably ends up being prioritized below production efficiency.
And therein lies the rub: is the experience more important, or is the ease/speed with which I can develop/market an app? If I have to compromise on the experience to get a paperback-sized device, will I love what I will, ultimately, see as a user? And the target for UX should be users loving the experience, something about which Apple has been pretty clear.
I'll Take Light
Just to make things interesting: rumors of a thinner, lighter iPad.