Well besides the screen, the other limitation is RAM. They want to keep the costs down so they will try to get away with the minimal RAM possible.

With more RAM, they could have multiple tabs open and you can cut and paste between the browser and an email message back and forth without quitting-relaunching several times.

Of course if you're drafting anything that involved, you'd want to do it on a computer, where you can have multiple windows open.

For the iPad, I think they should try to get to something closer to the computer but as they add RAM in future models, there will be other OS services which try to claim the new RAM.

These are new classes of devices so the user experience expectations are still forming. People who want miniaturized computers want the full computer multitasking model shrunk down. Apple is trying to balance good experience with battery life, which is dependent on how thin they want to make their devices.