On Microsoft's earnings call today, chief financial officer Peter Klein addressed the range of Windows 8 tablets in saying that the company was "working closely with chip partners and OEMs to bring the right mix of devices". Between the Surface RT and Surface Pro, Microsoft's own models ranges from $500 to $1000.
Expanding that lineup likely means a cheaper model, which could indicate a smaller form factor to reduce costs. Correction: Klein's quote seems to be in reference to working with OEMs to create cheaper tablets outside of its Surface line.
I think that Microsoft is better off addressing the perception that the Surface Pro is too expensive; its marketing needs to make it crystal clear that the Pro is a laptop replacement, not just a 10-inch tablet. But it sounds like Microsoft is reacting to cheap tablet alternatives like the Nexus 7, working with partners to address consumers' demand for cheaper hardware. Selling hardware at low margins to undercut competitors and build market share is the new standard--a game Apple doesn't play, but something Google and Amazon can afford because their profits come from software and services (advertising and retail, respectively). Klein did not elaborate on how the Surface RT has been selling, indicating only that the product only saw limited distribution in the past quarter.