for reading fiction, ~7" tablets or e-readers are the sweet spot. if you're reading technical stuff with diagrams, the ipad really is the best option. a 10" 16:9 screen sucks for anything but movies, you really will appreciate the 4:3 screen.
Right on all counts. Fiction on 6 inch e-ink works well - think paperbacks. Technical PDFs need more, and even at the same screen size, really work better on the iPad than on the old Kindle DX.
Incidentally, the Archos G9-80 is a nice 8 inch Android tablet sporting a 1024x768 screen, currently selling for around 200 euros. I think the rumored mini iPad will be the same form factor.
For the ratio not reflecting the actual screen area, IMO, manufacturers should reference screen sizes with four numbers: resolution (e.g. 1920x1080), aspect ratio (e.g. 16:9), and area (e.g. 22 in^2). I would drop the diagonal measurement, as it is completely misleading. I'd be willing to drop the actual resolution in favor of DPI.
As a consumer, you generally want a high DPI screen, with a specific aspect ratio, and a certain amount of screen area. The current spec reporting is not helping people out in this regard.