Ian Sherr, writing for the Wall Street Journal:

In cross-examination, Mr. Forstall said Eddy Cue, now head of Apple’s Internet services efforts, had used a 7-inch Samsung tablet for a time, and sent an email to Chief Executive Tim Cook that he believed “there will be a 7-inch market and we should do one.”

While the rumor mill is still citing anonymous sources, this quote, for me, seals the deal. If Apple thinks there is a market (and at least one of its high-ranking executives does), and Apple thinks it can dominate that market (and they already dominate the ~10 inch tablet market), Apple will enter that market.