This makes a lot of sense, and it’s in line with how Apple has kept around old iPhone models since the third-generation product’s launch.
Cheap 7” Android tablets are now selling in meaningful numbers (mostly the Kindle Fire and Nook Color), but I haven’t seen a single credible review claiming that anyone should buy one over an iPad for any significant reason except their much lower prices.
The Kindle Fire and Nook Color are $199 and the iPad starts at $499. How far down can Apple push the price of the iPad 2’s basic design, maybe with only 8 GB of flash? $199 probably isn’t possible and $399 probably isn’t a significant enough reduction to change anything, but if they can get it down to $299, that would take a lot of wind out of the 7” tablets’ half-assed sails.