Not a bad idea. The low dpi screen of the iPad mini really is a glaring flaw when you consider the price.
And because of that price, there's going to be a long future for Android tablets in the sub-$250 range, now that Google and Amazon have proven you can make and sell a worthy device for that kind of money.
It's an interesting model that makes them a real threat to both Apple and Android/WinRT based manufacturers. Cheap high quality tablets sold at cost with a great ecosystem behind it.
Of their competitors, only Apple both makes the hardware and has the ecosystem, and they will never beat Amazon on price.
They aren't going to take over the whole market, but I can see them getting a good sized chunk of it.
As long as they're not losing money, I really don't see a problem with this. For Google, having a decent Android tablet available at that price clearly helps them in ways beyond immediate profit from hardware sales.
And because of that price, there's going to be a long future for Android tablets in the sub-$250 range, now that Google and Amazon have proven you can make and sell a worthy device for that kind of money.