Exactly. If the iPad is cleaning up the 10" market and you know that even 15% strongly prefer 7", and there is no iPad in that market, it would make sense to do a 7" version and clean up the 7" market.
The problem is you're not attacking the market of people who prefer 7" tablets, you're attacking the market of people who prefer a 7" tablet SO MUCH they're willing to not get an iPad because of it. Who are these people? Probably geeks. Regardless, it's a much smaller slice of the overall pie.
