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The question is: are there a lot of them itching to spend several hundred dollars to do that via a wireless picture-frame in their lap?

In my experience those people are reasonably well served by sitting down at a PC with a webcam.

You can of course see your grandchildren via the iPad if they've got a laptop or desktop camera, it's the person with the iPad that won't be seen.

I agree. I think that the main impact of no-camera-on-iPad might be that fewer people use it as their only computer. (This might be by design.)