You're right - it doesn't create a need. I fills a need.
My wife and kids spend 95% of their time on our laptop surfing the web, watching movies, emailing, etc. While our PowerBook is tiny compared to the laptops of the mid-90's, they are still relatively big and get very warm on your lap. Batteries seem to need charging on a regular basis. A PowerBook costs a lot. I can see this being a device that each member of the family could have (and I could afford). While not everything Apple touches turns to gold (Apple TV comes to mind), I believe this will be a winner.
There's going to be some amazing apps for this. I would love one in the kitchen. A laptop takes up counter space. This thing can sit in the cookbook holder as geek cooks have imagined for years. Play some music, pull up your recipe, can be a slideshow picture frame when not in use... You know there will be some great accessories for this. I predict a picture frame dock that hangs on the wall. It can recharge and show photos in style.
With regards to the Kindle... would you really take a grayscale eBook reader with a text browser (yay Lynx!) for $489 or an iPad with HD resolution, Safari, email, iphoto, itunes, 140K apps, etc., etc., for $499? The Kindle is marginally smaller and may have one or two very minor benefits for book readers, but c'mon... really?
If the iPad delivers on performance/battery life, this is a winner.