Now this seems like a classic judo. The gizmo itself is underpowered compared to the iPhone, the form factor obviously limits its appeal somewhat. And thus we come to the key question--how should Apple respond?
Is the Pebble really committed to staying small? How large is the potential consumer base for such a device? Since you need an iPhone to run the thing, is it really a threat to Apple? Of course, Apple can kill it by producing their own Pebble, or they can let the thing go.
My own guess is that this requires no response from Apple since the iPhone is essential for the thing to work. Apple has, in the past, tolerated thrid party offerings that change the form factor of iPod, such as the many speakers, clock radios, etc. produced for it. These have not hurt iPod at all. I expect that they'll reason analogously in this case.