You can get a decent amount of hardware for that price, as long as they aren't going to want to make a profit. Apples vs oranges I know, but look at the (made in UK) Raspberry Pi for $35.

The screen is by far the biggest component of the BOM in the Nexus 7. Compromising that is the only way to substantially reduce the price. To hit $99 everything will be on the table, but RAM is cheap, and so are capable ARM SOC's. It won't be Tegra 3, but it will be good enough.

Probably shitty battery which is the thing that kills viability of a device.

My guess is that Google will subsidize each one, to grown the Android market/install base. Many video game consoles are/were sold at a loss.

my wild guess is the $199 will get 4g, while the $99 will be wifi only like the current nexus7. and obviously less storage.

BYO memory card storage perhaps.

I may be not far from the truth http://www.bgr.com/2012/09/03/nexus-7-3g-release-date-rumor/

Hell, I wish I had that on my Nexy.