• e-ink screen (highly readable, easy on the eyes; Sony had this piece before Kindle even hit the market)
• lots and lots of available ebooks (this requires a decent online bookstore, and Amazon had one)
• wireless delivery (Kindle had this first, and then the Kindle-for-iPhone came out and snagged a whole new group of mobile readers. Barnes & Noble was smart to realize they needed wireless to compete)
What all this adds up to is spur-of-the-moment convenience. You hear about a book, you look for it online, and it's available you buy it, all without getting up from your chair. A cheaper eReader will help snare those folks who would have bought Sony Readers if only they had been cheaper, but it won't lure away people who have tasted the heady nectar of near-instantaneous gratification-- the main reason I think the Kindle-for-iPhone app has been so popular, even without e-ink and a decent-sized screen. Stanza was popular before that app came out, and it did pretty well even without the Amazon store behind it (Amazon now owns Stanza).
So, the cheaper hardware cost will help, so long as it doesn't come at the price of lost convenience. The cost of ebooks matters more than the one-time cost of the eReader. That's where it really get interesting! The whole "what should the cost of ebooks be?" debate is still raging, even now that Amazon and Macmillan have buried the ebook price hatchet. Finding that sweet spot that maximizes revenue— bringing in the most money per book— will be tricky. Too expensive and ebookers won't buy, and too cheap and publishers could lose money. It should get better with time as publishers learn to estimate ebook sales and set prices accordingly.
I hope they work it all out because I want/need/require a steady stream of ebooks, but I'm sure glad it's not my job to figure this out.