One estimate is that the cheapest iPad costs $270 to manufacture. Throw in advertising, transportation, distribution, and so forth, and maybe they can cut the price $100 if they're willing to make a slim profit in order to establish a market. Of course, there's probably more room on the high-end models, and presumably costs will fall as they get more experience, and volume. But I don't see them getting within striking distance of a Kindle particularly soon.
The revenue model is not selling iPads. The revenue model is getting people to pay for all the books, tunes, and apps that they download to iPads. Not to mention the cost of the "data plan" from AT&T.
The iPad, like the Kindle, is a portable cash register. With a Kindle, wherever you are, you are in a bookstore, with your credit card handy. There's nothing wrong with that. I own a Kindle, and I'm happy with it. But it's really not necessary to have to pay for one. I've shelled out much more for books on my Kindle than I did for the Kindle itself. The only reason not to give the Kindle away for free is that you would wind up putting it in the hands of consumers who are not all that interested in books.
Regardless of the price at which the iPad is sold, it is going to generate plenty of revenue. For Steve Jobs, getting people to pay for it is a bit like Tom Sawyer getting his friends to pay for the privilege of doing his whitewashing work for him.