We went this path heavily some years ago with the Italian Math Olympiad organizing committee. (you can see some of our lectures, in Italian, on http://olimpiadi.dm.unibo.it/videolezioni/).
You will obtain the best results with a tablet pc with a Wacom active digitizer. The quality of the pen writing cannot be matched by iPads and the like. Unfortunately, that is a toy that does cost hundreds of dollars. You may get a used one off eBay for cheaper. I never used one, but I heard that the HP Touchsmart TM2 was one of the most appreciated models in the past years, and now it should be quite cheap to get one.
There is no cheaper option, as far as I know, that will provide the same overall quality. Graphic tablets such as the one you are considering are a reasonable substitute, but, apart from the size issue, they have a higher learning curve (since you have to learn to watch in point A and write in point B --- no problem after some training if you are the one teaching, but this will prevent you from asking the students to solve exercises in a class, for instance).
Forget about iPads and anything that does not have an active digitizer --- the writing quality will simply not be sufficient for your needs.
EDIT: clarification: I wrote "we" but I am just one member of the project and only a few of those lectures are mine.