Amazon is really hitting it out of the ball park with their announcement of the Kindle family. I'm a huge kindle fan and absolutely adore it as my second favorite device, one sliver below the iPhone. The tablet space has been really lame and the iPad dominates the market, and if anyone has a shot at taking some share away, it's Amazon.
The Kindle Fire looks like a decent play to expand Amazon's digital media services (music, movies, etc), but I don't think it's going to beat iTunes simply because I still consume most of my media on my phone. As long as the tablet is the secondary media consumption device, iTunes reigns supreme.
The Kindle touch and Kindle Fire replace the buttons on a Kindle with touch page flipping. In all honesty, touch zones are easy enough to use, just try it on an iPhone or iPad with the Kindle app. Buttons are MUCH nicer and really gets you into the book. I think the standard Kindle without touch is going to be the best model and I'm very happy that Amazon removed the keyboard.
I also think that the Kindle brand is a bit of a misnomer, there are really two markets here. People who read, and people who think they read. If you read for two hours, touch just hurts your thumb (#firstWorldProblem). People who think they read will probably get the Kindle Fire and read a pdf or a little bit here and there. Their first use will be watching movies or listening to music.
Finally two random thoughts. First, Jeff Bezo's took the Amazon release conference and made it very Apple like. Music starts playing, notes on how much the Kindle sold, and even released one Kindle TODAY. Only Apple does the "here's a product, and oh you can buy it today" approach. Nobody knew that was coming. And second - another webkit device (#webkitDomination).