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Update: The rumor mills are just dying to see a cheap iPad to compete at the lower end. Given that bottom-end 16GB iPad 2's are now going for $429 from many resellers, and you can buy refurbished iPads straight from Apple for as low as $299, it's possible we'll see a lower-priced iPad 2 model (especially since the current iPad display is a known commodity, when it comes to supply chain issues).
The Magic 8 Ball: The Magic 8 Ball reads, "Signs point to yes". You'll probably be able to get a cheaper iPad, but whether there's a storage reduction or not is anyone's guess.
In light of both the Kindle Fire and BlackBerry Playbook 2.0, there are some rumors that there might be a lower-cost unit. Given that Apple is now minting money faster than the mints, we have our doubts they want to play in the Kindle Fire ghetto. But Apple has been known to play their iPods to every niche, so there is a possibility. We've seen reports of up to three models, with one starting at about $299.
The Magic 8 Ball: The Magic 8 Ball reads, "Very doubtful". Apple isn't feeling any competitive pressure from the low end, and if you want a cheap iOS device, buy an old iPad or iPhone.