Of course, we've already seen long articles written on why this nonexistent product shouldn't be made. The excellent Macblogz has an article listing seven reasons why an iPhone Nano is a bad idea: the lack of App Store, virtual keyboard, the tininess, stripped features, less storage, worse battery life, and the cell phone contract.
As much as I like the Macblogz folk, I have to respectfully disagree and hope Apple is working on an iPhone Nano. One of the main reasons people discredit an iPhone Nano would be the lack of App Store integration. I don't see why Apple wouldn't have a smaller device compatible with it, particularly because it has been such a runaway hit. A different screen size and resolution would make existing apps useless, but developers could easily update them to fit the new dimensions. Or, they could just make two separate versions. Believe me, the incentive is there -- the oh-so-classy iFart app made the creator $40,000 in two days.
Another reason I could see an iPhone Nano being real is that Apple is now a player in the cell phone market, and you can be sure they want to extend its reach as far as possible. With the iPods, Apple likes to refresh the line every year in order to gain new customers, and to get existing customers to buy the latest and greatest Apple product. With 2-year contracts, it's going to be tough for it to repeat that trick with smartphones, so growing the base with a cheaper device makes a lot of sense. Additionally, the exclusivity deal with AT&T has never really been scrutinized, and maybe the Nano version could come out on other carriers.
Stripping out GPS and 3G would suck, but it would make the device easier on the battery. It's all rampant speculation though, and maybe I'm completely wrong and Apple will go the other direction and create an uber-iPhone. But we'll be sure to give you the latest developments when we're at Macworld next week.
(Photo via XSKN)