The Android Problem
Here's where it gets a little touchy: Honeycomb, Google's tablet-optimized version of Android, is a bit of a mess. It's a powerful operating system -- essentially, Honeycomb is what you make of it based on the customizable widgets and apps that populate each screen -- but it's also a hostile experience if you don't know exactly what you want or don't care to customize. And I'm not just comparing Honeycomb to the iPad. Even the Blackberry PlayBook, which has its own issues, combines a straightforward presentation and powerful swipe gestures into an interface that beats all other tablets on the market.
We don't know what Amazon's tablet software will look like, but if it runs Android as rumored, I assume Amazon will retool the software to emphasize its own content, making it as easy to access as possible.
The iPad Problem
Even with Amazon's advantages, an Amazon tablet still needs an answer to a very basic question: Why would you buy it instead of an iPad? Good content won't be enough, because Apple already has that. Processing power could be a factor, but only if it makes for a significantly better experience than the one Apple provides. The mere existence of a 7-inch tablet could give Amazon something Apple doesn't have, but that doesn't help justify a 10-inch tablet alongside it.
Until we know more, it's impossible to say how Amazon might make the case for its tablet above all others. But the anticipation is what has the tech world so excited in the first place.