Remember all of the stuff that the iPhone lacked when it launched? No 3G. No copy/paste. No third party apps. No Flash. No carrier choice. No removable battery. No OTA syncing. No Exchange. 2 MP camera. No front camera. Watered down Bluetooth. Amazon isn't Apple (yet?), but the focus on experience and not features is what's going to make or break Kindle in the long run.
Bonus: the original iPhone was $600 (later $400) /on contract/, and it still sold like hotcakes. This is a $200 tablet with no carrier allegiance required.