Almost every review of the iPad mini notes that the reason why you should get one is its small size, a size that makes it easier to handle. But they also note that the small size makes the mini less than ideal when you want to use it as your main computing device. This strongly suggests that they not really prefer the mini, they actually look for an even smaller device that can provide an iPad like experience.
I believe Apple should kill off the mini, and replace it with a much smaller device. The use case people want the mini for is for reading stuff, and doing some social networking, but not for analyzing a lot of data. It would be more of a PC companion than a replacement that can stand on its own. And shedding the role of a full tablet, it could shrink to become much more pocket friendly, and even easier to hold with one hand.
It would also remove the strange tension we currently have with iPad apps: you can design them for the mini or for the Air, but the size difference is just large enough that on the other device it would feel off, still serviceable, but not really right. And in the end neither Apple nor it’s customers are really well served with software that just works well enough, instead of brilliantly.
As with the iPod mini, it should be replaced with an “iPad nano”. We want it as portable as a paperback, and as easy to fit into a pocket, so we would look at a 6.5" screen, with a 1680×1260 resolution. It would measure 162 by 114 mm (6 3/8 by 4 1/2 inches). The weight could get down to 230g (8 oz) as well.
The drawback would be that it would require new software to become fully useable. But if this is the price to pay to get optimal software for the device, than it is the right decision to make in the long term. And Apple has done a lot of work in the last two years to improve its auto layout support to make this transition easier for developers.
The transition until the software has caught up would be somewhat messy, and dropping the mini would shock many, but in the end, this is the device the mini fans really want. Introduce it during WWDC, to give developers enough time to prepare updates, and it likely will have a good library of optimized titles ready for the Christmas season.