So now that we have the "iPad", here's where I think it's going:
The iPad will be a Kindle killer. Not a PC killer, not a smartphone killer — it'll be to the digital reading market what the iPod was to music.
Here's why they can pull it off. See, Apple doesn't sell "lifestyle electronics". What they sell, better than almost anyone else, is walled gardens. Ecosystems. The Mac, the iPod, the iPhone — they're self-contained environments, and that's precisely the appeal. They're the digital versions of the VIP lounges that frequent fliers get at airports with their platinum pass.
You could argue all day whether or not in the abstract it's worth paying all that money for such things. Out of the abstract, though, people are paying all that money for those things; Apple didn't post kickin' profits last year by jiggering their stocks.
I'm betting before the month is out (hell, possibly even by the time I post this) we'll start hearing about a new wing being added to the iTunes store, one for digital reading material. It'll be what the Kindle offers, with the advantage of being material that can be moved through the Apple ecosystem — iPad to iPhone to Mac and back again.
And yeah, it'll have DRM that will most likely be broken before the year is out, but I don't see Steve Jobs sweating over that. There are far more people fighting tooth and nail to get into Apple's arcology than there are people who want to break out of it.
ADDENDUM: A dissenting opinion. Some points here are quite valid; the main thing I wonder about is whether or not reading is going to be folded into "casual surfing". (Probably not yet.) But I can think of plenty of people who'd sooner buy one of these than pick up a Kindle simply because it provides them access to a different set of content.