If they drop the screen to 4 or 5 inches, it can't really function as a tablet, can it? If they're making a $100 tablet, they won't be cutting the screen size.
Well, remember, we are all theorizing based on an item that may or may not exist. My theoretical chain assumes that Google is building a "Nexus"-experience device.
That means a decent build quality. I'd hope Google wouldn't simply want to put a swirly X startup screen on a Pantech or Kobe with an 800x600 resolution resistive screen. They will also have to build a device with enough underlying horsepower to take Android upgrades for at least a couple of years. That's part of the Nexus promise.
Obviously the $99 price means they want to sell a lot of them, but I expect they'll also want to set pricing so they aren't subsidizing half or two thirds of the cost and losing $100 on each unit.
The processor is not the bulk of the cost of the Nexus 7. If they want to cut the price in half, they'll have to make a lot more compromises than merely cutting three cores out of the processor. But if they start making a crappy screen or cutting memory too much, it's not going to be a Nexus experience, and they'll be cutting off their own future sales by selling a junk knockoff as a Nexus unit.
So, given the hypothetical existence of this possible $99 Nexus tablet, I'm going to take a wold guess and say that screen size is going to have to be one of the compromises Google will have to make. If they make some of the alternative compromises to meet the price tag, it ain't gonna be a Nexus.
I could be wrong. But the whole thread is based on a rumor of a tablet that Google may never bring to light, and it may never have been on their to-do list to start with. I just can't imagine them selling something that looks like a Nexus 7 with a slightly lowered processor at a $75 per unit loss, or sullying the Nexus brand with a product that Pandigital or Kobi would barely acknowledge as theirs.