One of their sources has actually handled a prototype and says Apple is talking to OEMs in Asia now about mass production. The device is expected to launch with a 7-9 inch screen and basically be a large version of the iPod touch.
TechCrunch believes that the large form factor has been experimented with for a long time; however, there were concerns that users wouldn't like the device. With the popularity of the iTunes App Store its pretty clear the device would be a success.
(This image is a mockup and not an actual device)