.... turning now to the content of the rumor...!
As a hardware company, Apple is evolutionary rather than revolutionary, at least in it's post-JobsII incarnation. The revolutionary part is found in the synthesis between well-thought out aesthetics and well-proven hardware parts. Think about most of the hardware announcements so far - only iPod was truly revolutionary in relation to Apple's h/w lineup at the time, and even that concept was based on developing new abilities from new "out-house" standard parts. The first iMac was based on the first Mac, and the newest one stems from optimized Cube internal designs.
It is a basic strategy of Apple's to walk rather than jump, and so it is fruitful (sorry!) to look at their present in-house engineering capabilities (their design abilities are completely different by nature, as I stated above - revolutionary consequences of evolutionary engineering) and compare them to the evolution of industry standard parts.
So what would be the natural extension of their present engineering experiences, as embodied in iPod? The much-talked about PDA is not a natural extension; whatever skills the company possessed in the after-Newton era has dissolved and are NOT up-to-date with present-day hardware technology. Lest anyone mentions InkWell, let me point out that software doeth not hardware make, and that the OSX GUI is all but unusable on PDA screens in its present form. The iPod UI is much more relevant but needs to be seriously developed in order to offer user interaction of the quality Apple wants.
Apart from the inevitable increase in harddisk capacity, the most obvious hardware development in the industry is with regards to screens. The quality has improved, and several new technologies are being introduced in these months. Apple doesn't include revolutionary new technologies into its hardware, but the relevance is that they press the price of older technology. We should therefore see smaller-screen prices begin to slide in short order.
We are not talking touch-screen or tablet screen prices in that connection - if anything, the introduction of new non-Apple PDAs will push these up -, and that is yet another argument against PDA's, to add to the lack of Apple's engineering skills in this area.
I have been unable to firmly establish the CPU to be found in iPod, but I believe it to be an ARM of some kind. That should give enough processing power to extend iPod's capabilities in a number of ways. What we need to consider is which uses can be made from an iPod with a larger (color) screen and more harddisk capacity? Remember, Apple often extends present market spaces, rather than just trying to compete inside existing ones or opening up completely new ones.
Think a slightly larger iPod with one of its sides being nothing but a screen - that is the iFrame (a concept originally suggested and developed by IBM researchers). It can still store and play music and other data. It can display databases in vCard format such as contacts, appointments, notes - this would be easy to be enhance with a little software development. But its new ability is to show images anywhere. Anytime.
Okay, so who needs it? I do, for one. Ever since I bought a (cheap) digital cameral three years ago, I have been lugging my PowerBook around, in order to show my family and friends pictures of other friends, events, travels, anything really. Taking my iPod out of my jacket pocket and passing it around to be viewed, just like oldfashioned paper photoes used to be, would be great. Developing this ability is easy for Apple - mainly a larger screen and a different form factor.
People wouldn't buy it just in order to show pictures, just like they don't buy wallets to carry pictures of their family. They would buy it to listen to music, but on top of that it can also contain and display photos. It can show other data, too, like we mentioned above - addresses, spare parts catalogues, price lists, notes, day plans, etc.
It is not a PDA. It doesn't pretend to be that. You make notes on paper. You keep other people's cardboard business cards. It's strictly an output device. That's what makes it relatively inexpensive.
Input is possible with a Mac, just like transfering music and data can be done via a Mac only. So, you can put all the necessary music, pictures, text, data, etc into it via the FireWire connection - you could even have daily data updated automatically in the morning from your employer via the Internet (availability of spare parts, for instance).
Software enhancements could enable it to carry webpages, automatically downloaded in the morning, to be read during the day at appropriate moments. Morning papers, movie lists and reviews, on-line magazines in digital fashion - but not in realtime. And the already established Palm-friendly versions of the webpages are easier to handle, of course. Today's emails could be sorted and read on the bus - to be answered at your convenience later. E-texts, on the other hand, would be mainly for quick reads in short breaks; who prefers to read "War and Peace" on a tiny screen?
If you have gleaned data or notes during the day, you can easily input them on your Mac in the evening and transfer them to the device in an instant - after all, a keyboard IS the fastest manual input method, not hand writing. And it's much easier to organize the data on paper, before inputing them in an orderly fashion via the keyboard. Especially given the restrictions of a small screen...
What about all the things you can't do with this device? Write notes directly into it, transfer things wirelessly, take photos, make phone calls.... Convergence is an overrated concept. People don't want ONE device with which to phone, control their stereo, wash their car, etc. Even something as simple as B&O's phones that automatically lower the volume on your stereo when you pick them up, have had only VERY limited success. And, as often pointed out, Palm became successful PRECISELY because it kept its capabilities limited.
That's not to say that this device can't be extended - later. It would be relatively easy to include a dictation/recording capability. Software enhancement can enable it to directly take over recorded video, music or pictures from other devices (not realtime, of course, just to offload data from the primary input device). Direct photographing onto it might be possible too, either with a plug-in optical part, or by direct access from existing cameras via FireWire OR USB 2. Other exotic possibilities exist, but they demand hardware extensions that Apple need to find outside its campus - and they take time to develop.
Many people have sighed over BlueTooth. And yes, that would give interesting perspectives, especially given the announced RendezVous standard. Business card exchanges, fresh data to be requested by your device from the Internet and received at special "Data Fuel Points". Photos could be loaded directly from cameras onto the device with no annoying cables. However, you can't recharge via BlueTooth. And it takes extra energy.
To sum up, this device (iFrame is a bad name) would not increase the price of iPod. It would require only limited work with regards to hardware, software, engineering and design. It would extend the capabilites of iPod, and thus extend an already existing market.
It would be an even more enhanced MP3 player - not a stunted PDA.
