I've been watching the tablet vs ereader debate for some time now, and I decided that it's time to take a position. Tablets will probably never replace ereader for one simle reason:
Take an ereader with a 7" screen. Add a touchscreen, a faster CPU, and Android OS (don't forget the increased dev cost). Put it all together and you now have a tablet - which costs $50 to $100 more than the ereader. The cost will be even higher if you also wanted a camera, GPS, or any other extra features.
As it gets cheaper to make tablets, ereaders will also get cheaper. And they'll stay cheaper simply becuase ereaders have fewer hardware components.
But wait, you say. There's already a $150 tablet to compete with the $139 Kindle. True, but does that tablet do the Kindle's job as well as the Kindle?
Now, when we get a decent $100 tablet, that's when the ereader market might start to feel the pinch. The profit margin will be so thin by that point that tablet features might show up on ereader becuase there is little money saved by leaving them out.
By that point, though, I'm not sure we'll still be calling them tablets or ereaders. The market will have changed to much.