(Given the iPad mini's superior hardware, higher pixel density, and lower price compared to the iPad 2, I can't really recommend the $399 iPad 2 to anyone but those who need the iPad 2's larger screen due to vision or motor-skills issues. For everyone else, the iPad mini is a superior product in a smaller, lighter, less-expensive package, and it's obviously Apple's "affordable" iPad going forward--instead of old technology at the same size, you get newer technology--Retina display excepted--in a smaller package. I predict the iPad 2 is not long for this world.)
Assuming the iPad mini has made the cut this far, you're left with the most difficult question: fourth-generation iPad or iPad mini? If you're on a budget, you'll save $170 by going with the mini, but you'll still get the full iPad experience, including access to all the same apps and accessories. If, like me, you place a premium on portability, light weight, and one-handed use, the iPad mini's smaller size makes it very appealing. And assuming your favorite games don't depend on a Retina display, the iPad mini is a fantastic gaming device. This is the MacBook Air of iPads.
On the other hand, the extra $170 for the fourth-generation iPad gets you a larger, much-higher-resolution screen, better performance, and, thanks to its next-generation processor and graphics, likely a longer lifespan in terms of iOS updates and app performance. Think of it as the Retina MacBook Pro of iPads. Some people really do need to go Pro.
Me? I switched to a MacBook Air several years ago and never looked back, and I'm just about ready to do the the same with the iPad mini, Retina display or not.
Don't confuse the "mini" in "iPad mini" with "lite"--with the exception of a Retina display, this slimmed down iPad gives you the full iPad experience, including access to over 275,000 iPad-optimized apps, in a device that's about half the overall size and weight of the standard iPad. Retina-display purists will (justifiably) balk at the 1024-by-768-pixel screen, but I suspect that most people will be wowed enough by the iPad mini's other features, performance, design, and build quality to accept the screen for what it is--very good, but not Retina.