Just got off the phone with Apple and the guy told me (we were talking about MBA retna) and I think he let it slip. He said its comming, they are announcing a lot of "new" products next week. I hope it's just not wishful thinking! Ughh I want one!
I think it will all depend on price point. Make a 7" iPad and charge $399 for a 16gig version and it will indeed suck. Do it for $299 and compete with the 16gig Nexus and I think it will sell. I know I'd buy one at that price. Any higher and I'm buying a Nexus.
The other thing that will sour people is the availability or lack there of. It's one thing to be in back order the first few days after launch, but to still be 3-4 weeks out after a month on the market is annoying. With an end of October launch date people aren't going to be happy if they can't get their hands on units for Christmas.