Nikon 1 - Spot On - Upgrade from Phone Camera
I think Nikon have it spot on. Most of my friends either have DSLRs (big and they leave them in AUTO all the time) or use the cameras on their phones.
People with half decent smartphones can't see the need for a plain compact digital camera and a DLSR is a big old beast to carry round. But Nikon have addressed all the smartphone issues which do annoy people using smart phones (slow shutter, slow focus) and by making it with interchangeble lenses they position it above a simple compact camera in peoples minds. Mass market doesn't really care about sensor size, just us geeks.
I won't buy one (poor lens choice so far, shallow DoF I like too much in my DSLR) but many friends will I'm sure, and the technology looks exciting if they include it in the the D4 or whatever. Example, my wife hates slow cameras after using my D7000 but she really couldn't care less about settings, she just wants it to work. Think Apple.