I'm still amazed that the iPad sells as well as it does. (I can't attribute it all to Apple fan-boy-ness.) It seems to fit into this niche where it's
1)too big: You'll always find yourself setting it down somewhere because you can't just slip it in your pocket like your smartphone.
2)too small: Even with the increased screen real-estate, you'll find yourself constantly scrolling sideways and up/down. It's better than a smartphone for this, but see #1.
3)too limited: It won't run standard apps so you have to get very limited so-called compatible additional programs. Softmaker has a very nice suite that goes a long way toward mini-MS Office, bit it's beta and Android-only for now. If won't run Flash, so there are all kinds of web-sites, especially the ones with embedded video that just won't work. It doesn't have storage expansion, so you can't augment the relatively small internal memory. (I've got a 32GB micro SD on my smartphone right now.)
All in all, I think we'll see the market disappear as smartphones get even better and laptop/netbooks get even cheaper and longer (battery) lived.