It is basically an upscaled phone, expensive and limited, but it's for those people that consume content, and this form factor is the one for reading e-books with, as well as watching movies or listening to music.
And that describes how large a part of the market today? 98%?
When I started in computing, introductory courses in their use were all programming. Usage of a computer implied that you programmed it to do whatever task you needed done. This changed with the personal computer revolution, and somewhere around the end of the 80s, the norm had definitely changed to most people using ready-made applications such as WordStar, Lotus 1-2-3, and so on to perform mostly administrative tasks.
Today, computer use centers on consuming already created content, but the desktop OSs don't really reflect that, rather it is functionality that is tacked on just like any other application.
The iPod Touch and iPad however, are organised with media content consumption as the core. Listening to music, watching films or photos, browsing the web, playing a game, even reading books and papers - all of these are a tap of your finger away, on a device that is always on, always connected and eminently portable. And quick and easy ways off getting all kinds of commercial content to the device is available out of the box.
Note the difference vs Apples OSX Macintosh products. They come with software for organising and editing the photos you take, the movies you shoot, it comes with software for making music and possibly web pages. For a nominal fee, Apple supplies software for writing, making presentations and even crunching numbers. For a somewhat less nominal fee, they provide professional versions of their creative software, web tools et cetera. The Mac platform is centered around creation, and the iPod/Phone around consumption.
Now look at sales numbers - last quarter Apple sold 3.36 million Macs and 30 million iPods and iPhones.
Between looking at those sales numbers and licking your finger and sticking it into the wind to see where the public is heading, how would you design an iPad? As a shrink and redesign of a personal computer, or as a more capable media player and web browser?