I wouldn't be surprised if this were a wifi-only device. I think a lot of people are turned off of "large" tablets, but are okay sacrificing if they get a data connection. Offering a "fully loaded" mini ipad could potentially cannibalize their standard (and more pricey) ipad sales.
I'm sincerely interested in how this (alleged) device is going to fit into Apple's device and price-point logistics. Joking aside, this does sound just like a large ipod touch. But being that the large ipads start at $499, and the ipod touch starts at $299 (and capping out at $399), there doesn't seem to be a huge price-point gap in their lineup where the 7" ipad makes a whole lot of sense.