Could the iPad mini have the iPad 2 cpu and iPhone 3gs Screen?
...this suggests that the iPad Mini is, effectively, an iPad 2: an A5 with 512 MB of RAM and enough GPU power to drive the display..
An interesting little snippet here from Marco.org coming up with an interesting theory. Tim Cook's well known for making the most of supply chain and sending hardware down the chain. After the iPad 2 cpu got a shrinking down to 32nm from 45nm it's seems only logical to throw this into the iPad mini driving a smaller screen.
Speaking of the screen, I'm not sure I could go back to a 3gs resolution screen and only running at 1024 * 768 even if it's hitting 132ppi. Consider that to the Nexus 7 display 1,280 by 800 pixels, or 216 pixels per inch (ppi).
For Apple to release a product that's in anyway inferiror into the 7" ish tablet market would be a bad move.