For those still holding out hope for a 7-inch iPad, noted usability guru Jakob Nielsen has run tests on the Amazon Kindle Fire's user interface and come away with the interesting observations about the challenges involved.
The most striking observation from testing the Fire is that everything is much too small on the screen, leading to frequent tap errors and accidental activation. You haven't seen the fat-finger problem in its full glory until you've watched users struggle to touch things on the Fire. One poor guy spent several minutes trying to log in to Facebook, but was repeatedly foiled by accidentally touching the wrong field or button — this on a page with only 2 text fields and 1 button.
Nielsen believes tablets at the Kindle Fire's screen size won't be able to get away with showing standard web sites, like the iPad does, but instead need specialized mobile versions, like those often found for the iPhone. Whether or not the ~7-inch form factor becomes popular enough for web designers and developers to invest the time and resources necessary to support "yet another version" remains to be seen.
Interestingly, when [Steve Jobs] (in)famously threw cold water on the idea of a 7-inch iPad in Apple's future, in addition to reducing the scope and scale of potential software, one of the reasons he gave was that the UI would be too small -- that users would have the shave down their fingers to use it. He claimed Apple did a lot of testing before hand and determined the 9.7-inch iPad gave the best trade off between usability and design.
Nielsen's research seems to bear that out. It's possible, maybe even likely Amazon will lick this problem in a future update, but it's something to keep in mind for now if you're trying to decide between an iPad and a Kindle Fire for the holidays. Even at $300 cheaper, it's difficult to put a price tag on frustration.
Hit the link below for the full Kindle Fire usability results.