The latest kindle has a 6" screen (which could be expanded to 7" without changing the form factor) and I can fit it in my coat pocket or my wife's purse easily, and my pants pocket with just a little fiddling to get the angle right. It also fits well in the side pouch of my kid's diaper bag.

I find the size far more convenient than larger devices. I'd much rather have a generic prepaid phone and a kindle-sized pad than an iPhone and a 10" iPad.

There's plenty of room for a roughly 7" tablet of some sort to enter the market.