It's insane because Apple have been suckered by their own advertising. Yes, the iPad is one of a kind at the moment, but the android tablet is right around the corner. And that android tablet will be running Kindle and Nook apps.
While the payment platform and app store helps create the ecosystem for apps to exist, the iPad owes it's current success to the the apps people sell for it, not to the payment platform or the app store. The app store and the UI library is a precondition, but it is not sufficient -- if no one made apps for it, no one would buy an iPad.
An iPad without Kindle is slightly worse than a sh*tty microsoft win7 tablet IMO. iBooks is currently not very successful as an alternative. because unlike iTunes, Apple has established competitors who execute very well in this space.
If they try to play hardball with Amazon, Google Android tablets will then just wipe the floor with Apple... same way microsoft did in the 90's. More likely, Amazon is playing hardball with Apple... Maybe Apple will make an "exception" using some tricky accounting to get a part of that 30% back to Amazon.
Furthermore, Apple is demonstrating a very real tendency to retroactively fuck people over. I'd be pretty worried about my book collection if it were in Apple's hands and I stopped paying Caesar.
Assuming, of course, that the only thing people do with their iPads is read.
(Personally, I can't make myself read for very long on an iPad anyway. I do fine on Kindle DX and Sony Reader. I would do best on a folding two screen eInk device the size of the tall Sony Reader, that opened to reveal two facing pages.)
Realistically, it has cost Amazon nothing to support the iOS platform other than a few weeks of dev time to build the app and deploy it to the store. Complying with these ridiculous demands would cause a zero cost platform to suddenly have a very noticeable cost.