The iPad Mini's far from impressive DPI is no doubt the result of Apple not wanting to introduce another resolution into the iOS ecosystem (the Mini's resolution previously appeared on iPad 1 and 2). I don't think they were cutting costs with this panel, rather, you are seeing the non-resolution-independent iOS chickens coming home to roost as software limitations begin to hold back hardware innovation.
Apple needs to bite the bullet and implement true resolution independence in iOS and OS X otherwise every new device form factor (or Retina display, in OS X's case) is going to make things more and more painful.
There are two other major reasons they'll have gone for the lower resolution:
1) Power consumption - the retina display drains a lot of power (and handling the higher resolution requires a better processor which contributes further). This means a bigger battery, which means a larger and heavier device which kind of goes against the point of the iPad mini.
2) Price - It seems that one of Apple's key business goals with the iPad mini is to bring the lowest entry point of the iPad down. Retina displays a going add cost which means Apple would have to go in at a higher price point - kind of undermining the whole thing.
Apple have optimised for size and price and while I'm sure they'd have loved to have a retina display on the iPad mini, the trade offs they've made are consistent with the aims they have.
If I had to guess, I would say that the resolution dependence has been a major contributing factor to the high UI/UX quality in iOS applications. Yes, there are other aspects to consider, but this single design decision has a lot of benefits to developers.
It's definitely a major contributor to the simple fact that iOS apps, on average, look a whole lot better than Android apps. That being said, it's a burden on Apple hardware designers that will only increase with time.
It's a tough decision if there is an elegant solution out there, I can only hope that Apple is already working on it.
This is a good point. I wonder if they could go half way on resolution independence, a hybrid solution of some sort. They don't really need true resolution independence since they control all the hardware. But if they had something that worked within certain parameters it would ease up the burden on the hardware designers and iOS developers without hurting the UX...
I knew this was going to be an issue when they decided on a fixed resolution as well as a fixed DPI - they are very limited in what size devices they can now produce.
It has been of great short term benefit to them though, as it has been much easier for people to develop great looking apps for it.
I'm really curious to see if they do eventually go for resolution independence and lose the advantages that comes with it, in order to gain the flexibility of making a broader (or even just different) set of devices.
I wonder if even they have decided with certainty which way they are going to go.
If that's the direction you go, how do they handle resolution independence of raster images? Sure, you can implement scaling, but you'll still need developers to provide a massive range of assets to satisfy every potential resolution, or suffer the consequences of blurry and/or jagged images as a result of their scaling artifacts.
The problem for Apple is that they defined Retina as "you can't see the pixels" and there is no need to go higher PPI than that. But the pixel doubled iPad mini would have a resolution higher than that. So they would need to spend battery life and processing power on something they have themselves stated is worthless.
You are correct that 326 dpi would also have been an option, but while we've seen lots of, say, 1280x800 panels in the wild at the Mini's price point or lower, I have no idea what the pricing of a 2048x1536 panel would look like. As you note it would probably be substantially more expensive.
This just highlights why dpi independence is important - if your only option to raise dpi is to double it, that's not particularly helpful unless you only plan on improving the dpi every other year when costs have fallen sufficiently.
From my reading I think that price of the screen for a 2048x1536 screen, while higher, isn't the real showstopper.
The truly big issue for a very high-resolution screen is power draw requiring a larger battery leading to a larger, heavier device.
As Amazon doesn't highlight—for obvious reasons—the iPad mini is thinner and lighter with a larger screen. This is where Apple's engineering dollars were spent.
Sourcing enough parts could also have been an issue. Perhaps they couldn't get enough high resolution 7" screens fast enough. Having the mini being on back order throughout December would easily cost them many more sales than they lose from people who decide to skip the mini due its screen resolution.
Apple needs to bite the bullet and implement true resolution independence in iOS and OS X otherwise every new device form factor (or Retina display, in OS X's case) is going to make things more and more painful.