We've heard rumors about the "Google Play" or "Nexus" tablet before, but the rumors also said that Google would probably launch this tablet in May. Apparently, that won't be the case anymore, as Google is trying to lower the costs of the tablet, so they are pushing the launch to July.
There are still hints that this tablet would be a $250. That would be a mistake, even if the tablet is of significantly higher quality than a Kindle Fire. Ideally this tablet would cost $150, but being under $200 is just mandatory, because that is the sweet spot for most mainstream buyers, the vast majority that aren't buy any tablets right now because they think are too expensive. Another sweet spot would be under $100, but we're probably 2 years away until that can happen, while still being able to have good performance with the latest Android version.
Speaking of Android versions, it would make perfect sense for Google to launch this tablet with a new major Android version – say Jellybean. That would depend first on it being launched at Google I/O. If Jellybean is launched in fall, obviously they won't use it. But if it is released at Google I/O at the end of June, then it's very likely it will use the latest version of Android. Going by how Google gave devices at previous I/O events, I'd expect them to have it ready for the people there, too, just like the Galaxy Tab 10.1 was ready one month earlier for them last year.
If it's $199 or less, and has the latest and even more improved version of Android, and Google promotes it at least as heavily as Amazon promoted their Kindle tablet, I believe a lot of people would get it. The only reason the Android community supported the Kindle Fire was because they wanted something to compete with Apple, and not be the only game in town as many Apple users were saying.
By supporting it, the tech media picked it up as well, and it's probably the main reason why it got so successful. But the Kindle Fire has served its purpose from the point of view of the Android community, and now it's time for Google to take it over from here, with their similar priced tablet. At the same price, the Kindle Fire holds absolutely no advantage over such an Android tablet.
It has the much bigger Android store, all the Google services and apps, and on top of that, it also has all or most of Amazon's apps that are available on the Kindle Fire as well. So picking up a Google tablet over the Kindle Fire should be a nobrainer, as long as they have very similar prices.