If the point had been that the air is too large to be considered an ultraportable then I would agree. They only sacrificed the ability to call it ultraportable.
How much of a sacrifice is that?
Depends on how you define "portable"...
For me, it's more about weight than size.
Regarding size, portability is a rather "binary" concept, so to speak:
a) Does it (comfortably) fit into my pants pocket? Yes or no?
b) Does it fit into my small backback I carry to university, or into my briefcase / business case I carry to work? Yes or no?*
Any serious backpack, briefcase etc. is of course designed to hold a few files and sheets or a small folder, "A4" sheet size it is called in Europe (≈ 8" x 12").* And the MacBook Air goes beautifully alongside them in the bag, especially since it's s thin. We have all seen the TV ad, have we? Now, if Apple would make the footprint 10, 20 or even 50% smaller, the product doesn't get better in my opinion - it rather gets worse! Screen size and / or resolution and keyboard will be smaller, the cooling system will be less efficient, etc.
To cut it short:
Larger is better, as long as it fits into a briefcase or similar.
Unless, of course, I can put the thing into my trousers, and carry it on my body all-day, like an iPhone.
No need to make the MBA smaller.*
Regarding weight, less is always better, unless too much stability and sturdiness is sacrified. But mind you, the MacBook Air weighs in at about the same as the 10" Asus EEE (which I think is more about affordability and weight than size; it's not very thin either).
I don't see Apple, offering anything "in-between" soon.
And frankly, except for maybe the price point, I don't really miss anything there in Apple's line-up.
I would welcome some price drop for the MBA however
* women with their fashionable but often smaller handbags might disagree in that regard though