No small capacity iPods...
Apple can only offer iPods in the capacities that are currently being provided by hard drive manufacturers.
Since the 5 GB 1.8" disk was discontinued, they can't offer one that size. The 10 GB disk is sitll being manufactured however, eventually that may go away as well.
If Apple tried to stockpile a small drive size, their costs would go up.
Also keep in mind, that with 10 GB being the smallest capacity drive offered in 1'8" now, the prices for it would have come down. Expect the lowest capacity iPod to sell for $299 US or less when Apple finally announces iPod updates. (Whenever that is.)
Oh, what do I expect to see this week? Shipping notification for my BTO DP 1.42.