I have a 10" tablet (iPad) and I actually prefer the 8.9" form factor, it's easier to handle - 7" is even more convenient to carry, but around the house, 8.9" is my personal sweet spot - so, no bonus assigned for a bigger screen that makes the device unwieldy to use.
Resolution: do I really care if my tablet has more pixels than my 42" TV? Personally, 1920x1080 is good enough for me - and well worth having as compared to the first generation iPad, it is much easier to read.
$85 more? Well, let's just say I don't care about ads on my lock screen and compare $399 to the $249 I paid for my Kindle Fire HD on pre-Christmas sale. That's a 60% premium you're paying to get your software ecosystem of choice, and I'm willing to bet the Nexus device also has waiting list / delivery time issues that the Kindle does not.
Choice is the key here - I'm learning to love the Amazon ecosystem model, they're much better about auto-configuring the device than Apple has been: all my previously purchased apps were installed "out of the box," MP3s of my CD purchases instantly available for free. Yes, it ticks me off that they're always trying to sell me a TV show or movie for $3, or a book for $9 (where does that pricing model come from?), but mostly I find it easier to use than the iPad/iTunes model - does what I want without me burning a lot of time configuring it all.
Seems to me, if you want to spend a lot of your time to configure it all, you should be paying less for your device, not more, but that's just an opinion.