Since Apple prides itself on releasing one item with an optimized experience for that one item, how is a stripped down version going to work? They can take out cameras and GPSs and what not, but it it doesn't run the software as fast as other iPads, people will not be happy.
I'm not too sure. Maybe things will change at Apple in the coming years but up until now they've mostly dedicated to offer premium products where margins are high. The only exception I can think of in recent years are iPods.
I still think they might put out a 7" tablet at that price. Jobs was the one who said he'll NEVER put out a tablet. Now that he's gone, they can go ahead and do it. A 10" tablet for $200 would be nice, but as people have pointed out, there would be no profit margin, and then everyone would buy one, and that would lessen the conspicuous consumption aspect of buying an Apple product in the first place.