It all makes perfect sense except that the price tag is supposed to be 800$. Is that the entry-level? O.o
Sometimes it's more expensive to make something smaller. And just because it's smaller doesn't mean it has to be a lower level.
The question is will the build quality be good enough to satisfy people used to XXD or XD bodies. I've read that the EOS-M build quality is good and I hope this follows suit.
And if a body only version is available for $699 that's reasonable. I have no desire for any EF-S kit lens.