Even more rumors have come out about the recently rumored "iPhone nano" which has been confirmed by WSJ, TechCrunch, and other places. The new rumors say that the device will have no internal memory and Apple would go for cloud storage with a revamped MobileMe service. I think that Apple would put 4GB of internal memory to allow for apps. There is also a rumor stating that Apple will include a physical keyboard, which I think is obvious because a soft keyboard on a 2 inch (or maybe even smaller) screen would be extremely hard to use.
If Apple were to release a smaller iPhone, there would be technical complications. For example, apps would need to be built for it's screen. Also, the internals wouldn't be nearly as good as the iPhone 4's because of the space issue. The camera would be reduced down to about the quality of the iPod touch.
Even though that's true, I still think it is a cool idea. Maybe there will be a modified iOS version for it, maybe having a folder for apps and the essentials on the home screen.
But as of know, it is all speculation, and it may be for nothing, but we'll have to wait and see.
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