I don't think people will switch from an iPad to the Nexus 7, but I am sure people will buy it instead of an iPad based on the price alone, and the size. The 7" screen will make it easier to read an eBook on, and may be better for viewing videos. If it can be sold internationally, it will do much better than the Kindle Fire which is limited to the US. I don't think it can overcome the iPad mainly because so many of them have been sold already and a lot of people have bought into that content universe already (music, movies, apps). It can be a solid number two as long as the hardware performs as expected. It may not have as many apps as an iPad, but the developers will start moving over once there is one main device to develop for instead of the multiple devices that are running Android right now.
The biggest question mark is whether Microsoft's Surface tablet shows up on time and can compete, and what the next version of the Amazon Kindle will be when it is released.