Something to keep in mind is that a lot of the people who get ereaders are not tech-savvy people. They see the Kindle (eInk) and see the Nook Color and don't even think about things like rooting, ROMs, or other functions above what is offered through the normal device itself. Consumers will look at the $199 price and see a deal on a tablet, not even considering that there are other tablets out there with SD slots, cameras, and so on.
I do think that this device will be passed by the tech-savvy people. I have a Kindle, and it does a great job for reading ebooks. I have a gTablet, and it is good for tweaking and modifying. If my wife were to want a tablet, she might get the Kindle Fire. Things like camera, SD, and so on aren't important to her. Being able to play Angry Birds, and reading color magazines would be. She really can't see spending $500 or so on a tablet when she spent $250+ on a netbook just a couple of years ago.