The new guidelines relax the minimum resolution for Windows 8 devices to 1024 x 768 at a depth of 32 bits. That’s a significant change from the current guidelines, which require a minimum resolution of 1366 x 768 for a device to be certified with the Windows 8 logo. (Windows 8 currently supports the lower resolution for DIY installations by hobbyists, but OEMs have been prohibited from selling new devices with native resolutions lower than 1366 x 768.)
The idea of an inexpensive 7-inch Surface-branded Reader, running at a resolution of 1024 x 768 with full access to Barnes & Noble’s extensive library, is indeed intriguing. And of course it wouldn't be just for e-books. With the ability to run the Amazon Kindle app and access the massive Xbox music, video, and games platform it would be instantly useful as an entertainment device.
The reason that the screen resolution is important is that you generally cannot find a tablet smaller than 10" that has a resolution of 1366x768. I double-checked on Amazon, and I could find a few dozen 10.1" (and larger) tablets with that screen resolution but not any 8" or 7" tablets. There is a single 7" tablet (the Nook HD) which has a screen resolution greater than 1366x768, but that's the only one so far.
Clearly Microsoft is planning to encourage Windows 8 on smaller tablets, but I'm not so sure their main interest is with 7" tablets. I think MS is also keeping their options open for the super cheap 8" tablets as well.
The thing that ZDNet (and Mike Cane) missed about the 1024x768 is that hardly any 7" tablets are using a screen with that resolution. Sure, there are quite a few with a higher resolution screen, including the Kindle Fire HD, nexus 7, but not many.
There are a few 7" tablets on Amazon that have a 1024x768 resolution screen, but that screen resolution is much more likely to be found on cheap 8" tablets.
That is why I think the price point for the 8" tablets is what Microsoft is really going after, not the 7" tablets. The 8" screen panel is cheap, and that means it will go in cheap tablets.
On a related note, if Microsoft was focused on 7" tablets then why did they exclude tablets with a screen resolution of 1024x600? That screen size is fairly common on 7" tablets.
IMO price is the key point here more so than screen size.
P.S. If I am correct then much of the Nook Media speculation that ZDNet and Mike Cane are spinning turns out to be a misinterpretation of the evidence. What do you think?