E-ink readers are great on their own for obvious reasons and don't have to compete directly with the iPad. I don't know how well an app-centric Amazon tablet would do against Apple.
Amazon probably has the money to dip their feet and fail, but how well are any of the competitors doing by comparison?
They also obviously have an absurd customer base to tap, and they already have Kindle, on-demand video and rentals, but I don't know if that is going to cut it. If they focus on being cheaper, maybe, but good luck with that. It would be interesting if they partnered with Readability, at least just as a cute "fuck you" to Apple.
They'll have to focus a little differently or frame their device in an interesting way. Time will tell.
One thing that stuck out to me recently is that on Amazon's left sidebar digital content is now on the top. If Amazon loses their battle over state sales tax then they need something that puts them on a level playing field and that is going to be digital content.
In my opinion the difference between e-readers and tablets will very soon be non-existent.
Except for all those 3G kindles. If they are working on a tablet, you can bet that "Whispernet" will feature prominently for delivery of music, video, and (dare I say it) a skype/facetime-like application.
Music & videos however add up fast.
If you opt or prince into the 35% royalty model (i.e., 65% to AMZN) then they are graciously willing to absorb that cost themselves.
It doesn't seem like the other vendors are doing a very good job of "testing the waters". By the time they're done messing around, it might be too late. Seems like this is the year to either do it or not.