I bought a great 12" laptop from Dell in 2004 that is similar form factor to the largest "netbooks" and it was a great machine that weighed only 4lbs, had up to 4 hours battery life and a 1280x800 screen. With upgraded memory and hard drive the only difference I can see between it and the best netbooks now is price - it cost me $1000 but as you know h/w costs come down, CPUs get faster so that that is hardly a fair comparison. All this leads me to conclude is that for me 12" is a workable every day laptop size, especially if I can dock it with a nice large flat screen and external mouse/keyboard at work. My current 15" MacBook has a great screen but is a little big to carry around all the time especially on airplanes - even my 12" screen was problematic in coach class seats, several times it very nearly got destroyed by extreme recliners in front of me.
However below 12" I think it starts to get a bit iffy as an every day machine hence there are many to see this as a niche or special use device - as we can see from the comments.
Personally I think there will always be people who want a 10" cheap laptop for things that a mobile phone can't do and a "full sized" laptop isn't available. I'm quite amazed that people haven't suggested small keyboards are great for people with small hands, or kids even (or maybe kids aren't supposed to have laptops until their hands are "full sized"?).
I also think there is an ideal device in the 10 to 11" screen size format - it is essentially the same hardware except for a higher resolution touch screen, and comes with (or without) a removable or foldaway keyboard. In terms of CPU power I don't see a need for much more than is available in the top of the line smartphones which as we know is ideal for note taking, book reading, web surfing, email, navigation, streaming some lower res video, and light gaming of the mobile kind. Most people would call this device a "tablet" because of its form factor and it might actually be closer to 12" diagonal for 10x8.5" print media compatibility however I think it really could become the kind of device that most people carry around with them beyond the phone and instead of a laptop.
Yes rumor has it that Apple is working on such a device so this isn't original thinking at all, but I think that if they do release one they will probably nail it and probably put a nail in the coffin of netbook genre as we know them especially if the price is in the $500-$600 range. But even if that isn't the price then there will be a rush of copycat machines that are cheaper albeit nice as nice. A machine without a permanent keyboard can have a larger screen. A machine that doesn't need such a power CPU because it isn't very multitasking and doesn't gobble a lot of memory or run a HD continuously will get better battery life. To me if they could just take a eBook reader sized device, and let me doc my smartphone with it and just us it as a big external screen then that would be great. I wouldn't even need another keyboard because my phone has a great go anywhere two-thumb keyboard (obviously not an iPhone) that I can type quickly and accurately on.