So the pen is actually adding significantly to the cost of the Note, which is probably why they're shifting the pen-less Tab to the low-end of the market.

Jobs called a pen an 'automatic failure', but he's not Korean, Chinese or Japanese. A pen is a much better input mechanism for Chinese and Korean characters than a keyboard, virtual or no. In North America, the target audience for the Note probably overlaps fairly well with the type of people who buy Wacom tablets for their computer -- a very small minority, but those who do love them.