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It's not official, but a lot of people think Apple will eventually bring out a Nano version of the iPhone. :\ From what I can guess, they'd probably just take out some of the lesser used features and put everything else in a smaller unit.
I think it'd be a bit cheaper if they offed some of the phone's capabilities. I imagine if they did go with a Nano, it would get the same sort of treatment that the iPod did. I remember people didn't like the Nano when it first came out...but now I see them everywhere.