If you want a Kindle that can surf the web, get email, videochat, and listen to music....it's worth the extra money. My girl's dad wants a Kindle and a laptop, but I'm just telling him to get this. For $500 he can do all he would ever do on a laptop and he gets a much, much nicer reader.
Tablets are the way to go for those who don't need much, people with more powerful computer needs don't seem to understand that. I would never buy one, but I can see where they have their place.