Here's one way it doesn't beat it. Tablet apps. I tried using it. I don't like stretched out phone apps. So I just let my kids use it for some games. That's all it's good for.
I agree that the lack of tablet apps is a current limitation to the Nexus 7, mostly because Google had to choose between "large phone" (large) and "tablet" (xlarge) sizes and chose "large phone", so even those apps that take screen size into account treat the Nexus 7 as a larger-screen phone. Google needs to introduce some size between "large" and "xlarge" or convert over to a new sizing schema (maybe by specifying screen sizes in inches rather than categories, so apps can add/remove elements appropriately given a specific screen size?).
However, I wouldn't go as far as to say it's "only good for kids to play games", as you imply. Stretched phone apps are hardly ideal, true, but the differences between them and apps properly designed for a 7-inch screen are, by definition, cosmetic. I don't find myself unable to perform any function my phone running a not-so-stretched version of the same app could do, or (with maybe an extra tap or two) anything a 10" Android tablet could do.
Given Google's decision between trying to define the Nexus 7 as "xlarge" and having the existing library of auto-adapting apps try to cram 10 inches of screen elements into 7 inches, and defining it as "large" and having the scaled-up, easy-to-read, but somewhat limited user interfaces of an app designed for a 4+ inch phone screen, I'd have gone for "large" as well. At least until they can get something out there that truly accommodates their new screen size.
In the meantime, it shouldn't be that hard to modify the build properties to set the screen size to "xlarge" if the lack of "tablet" apps bugs you. Google had to make a call, and obviously it's not the right call for everyone.
In fact, I'd LOVE to see this as one of the tablet's "developer options" in a future release. I've found several of the options to be incredibly useful, and being able to test apps going from "large" to "xlarge" on a single device (maybe include all the options for the heck of it) seems like a great developer tool.