The problem is, generally speaking, people don't want to pay more for a less capable device. If the iPad were $150, I would likely have none of these complaints. For that matter, it doesn't need anything more than a WebKit browser and an email client (well, these days, maybe a Facebook app makes more sense than an email client), rather than a stripped-down OS running applications that you just don't need on a device like this. I suppose, though, I've undermined my own argument. People might want a Twitter client or an RSS reader.

I suppose since they already had the iPhoneOS available, it made sense to use it, and it probably reduced development costs, but it engenders comparisons to the iPhone, which makes it look bad, and not only haven't they've done anything to discourage that, they explicitly did it themselves.

$500 may be the best price point they could make, but it's just still far too expensive for what it is.

Honestly, the thing that's going to make a device like this work is cheap ubiquitous data service. Right now, if grandma wants one as her first internet device, not only is she going to have to pay $500, she's going to also have to pay an additional $300 for the GSM version plus a $40 monthly bill for the service, or she's going to have to pay an additional $50 for a wireless router plus a $30 monthly bill for some sort of broadband service. That cost is $0 to you and me because we already have the infrastructure to support an iPad, but it's not insignificant to those that don't.