Like you said the mini is a response to the Kindle Fire and Nexus 7 but it misses in two key areas:
1. "It's the price stupid" and getting a smaller device goes hand in hand with getting a smaller price. $329 just doesn't cut it when
Amazon and Google are pushing the cost of entry ever closer to $100.
2. In Apple's event today they were bragging about how much
larger the mini is than it's competitors (49% screen and 35% body). Obviously they don't get it if they are talking about how much larger the "mini" is. If it isn't the price then people want the smaller size for on the go. Having an 8" Vizio Vtab, the size is great if you want a tablet to primarily use as a "full size" tablet but is just small enough to be more manageable and take on the go. However if you really want portability or just to read my 7" tablet is the go to device.
That one inch might not seem like much but in my opinion it makes the device more cumbersome and difficult to use one handed. Of course it is mini compared to a 10" device but again that is missing the point of a 7" tablet. If you can only have
one device for high portability and ease of one handed use, 8" is probably the sweet spot. If you want a second device as a companion device to a full size tablet then 7" is the way to go. I can't seen any reason you would have an iPad and iPad mini as a lighter easier to use companion device. So maybe this is an entry level model to get people into Apple and the full size iPads? In that case see #1, since this ins't entry level pricing. Also isn't that what the iPhones and iPod touches are for?
Apple is very good at what they do but this is a tablet that is clearly in response and in defense, definitely making it an also ran rather than a leader for a change.