For me, the personal benefits of reading more and better books (vs. whatever magazines or mediocre books are lying around) more than cover the costs.

I wouldn't consider the Kindle an iPad replacement at all (I have both, and sometimes read books on the iPad in the Kindle App, but only when I want to use backlighting to avoid disturbing anyone nearby in a dark room)

If I were Amazon, I'd bundle the Kindle with books, maybe in the form of a rebate -- if a user buys ~10 books in a year, he gets a $100 credit on a Kindle he has already bought.