It seems I'm in the minority here, but I really like what Arrington is saying.
People will pay $100-$200 for a dedicated eBook reader. As much as I love my iPad, it does come with a few extra things that one doesn't necessarily need. There's room in the market for a $200 tablet from a consumer point. I have no idea if it makes sense from the manufacturer's point of view, though.
That said, this recently created space [cheaper tablets] has started to be dominated by Android tablets. Can webOS find a place there? I don't know. But I think it will have a greater chance of taking on this market than the $500 range overwhelmingly handled by Apple's iPad.
edit: if they go as cheap as chips and hardware + a little more, they can also have a huge impact on basic tablets used for education, etc. in my dream world, techcrunch somehow licenses webOS and makes the CrunchPad once and for all.
double edit: in the comments someone suggested subsidizing the tablet device to lower its cost and making it up using app sales or a subscription. think game consoles. that would be interesting.