I think this is a smart strategy. We've seen countless brands try to compete with the iPhone to become the smartphone leader, and most of them fail because they try to compete with Apple at what it does best: develop innovative, high-quality products that can do many things pretty well. By sticking to their original game-plan Amazon is ensuring that the Kindle continues to be the best e-reader on the market.
If the next few generations of Kindle continue to become cheaper and lighter I bet most iPad users will own Kindles too!