Personally I don't see Virgin Blue operating Turboprops either.
But it would make more sense for Pacific Blue to operate them in NZ. Sooner or later one of the competitors to Air NZ has to wake up to the fact there is a massive untapped market in such cities as Dunedin, Hamilton, Palmerston North, Tauranga, Invercargill. These markets are sick of the monopoly of Air NZ and the excessive fares they pay in comparison to flying out of the major centres.
Certainly the long term survival of Pacific Blue or Jetstar will depend on the regional markets. Certainly for Air NZ the amount of profit made out of the regional routes in NZ, allow them to compete direct with PacBlue or Jetstar and not affect their profits! If PacBlue or Jetstar want to hurt NZ in the domestic market - bring the lower fares to the regions, because I know that if better services were provided to Dunedin (not necessarily jet services either), the Air NZ flights will be almost empty!