Apple is still going smaller an lighter, but they are also branching into and broadening new markets.

Your logic is slightly flawed, I have to say. You are working off the assumption that the iPad is a logical successor to the iPod Touch/iPhone. In reality, it is not. Rather, it is a progression of the concept of the netbook.

The purpose of a netbook is to be a light weight, low power laptop whose primary functions are surfing the internet and running simple applications. The iPod Touch can do all this right now, but I would say it is uncomfortably small for extended use. I would rather have something with a screen the size of a laptop.

Here is where the iPad comes in to play. It is smaller and lighter than a netbook with a comparable screen. It lacks the processor power of a full laptop, but it makes up for it in doing its specialties well. I can surf the internet (read news, search, post on forums, etc) and run all kinds of applications designed just for the iOS. Lets face it, for these simple tasks (the majority of what netbooks do anyway), all you need is a hand held processor. And realistically, if I were on a flight and wanted to watch a personal movie, I would be thankful I could do it on an iPhone, but it would be more comfortable on an iPad.

So I would say that the iPad is not "going bigger", but rather branching into a new market. Tablet devices which are lighter and more conservative than netbooks but can be used more easily than palm sized devices.

Interesting question / point. I think that "lighter" is a safe bet for many consumer electronics; however, after a while, smaller can be counter productive depending on what the device is intended to do. For example TVs with smaller screen sizes don't make sense in all situations. The hand-me-down 19'' TV I had in my college dorm room was ok, but after graduation and a couple raises, I of course wanted a larger, not smaller TV... and ironically it was about the same weight as my old 19'' TV.

In the case of smart phones, the trend is still moving on two ends. The original smart phones like old Blackberries or Palm OS phones were chubby ugly phones with tiny screens. Modern smart phones are definitely thinner, but the screens are much bigger. For a couple years it seemed like this was going to level out with the iPhone-esque form factor; however, recently the HTC EVO and Motorola Droid X decided to offer bigger screens... and this brings up the balance of usability. People want their devices portable - so smaller and lighter makes sense, but people also want functionality - and that means enough screen space to easily read, watch movies, etc. When you take away things like a mouse, touch pad and keyboard, the screen is even more important because it's your major input and output device.

So in the case of the iPad, Apple had to think about how people would use this device. The larger screen indicates to me that they wanted to push ease of reading and a higher quality video watching experience. The bigger screen also allows for more flexible work space than the cramped screen of a smart phone. It's still lighter / thinner than laptops and netbooks. While it doesn't replace a laptop or a phone for most people, it offers a new in between experience.