I agree and Gruber wrote a good post about that [1]. However, if Apple releases a smaller 7.85" iPad, it will still have a 40% larger screen area than 7" tablets do [2].

[1] http://daringfireball.net/2012/07/this_ipad_mini_thing

[2] http://a.yfrog.com/img615/4234/6j2n.png