Nope, Apple is not redesigning the entire phone in one year to add .3
Subtracting .3 doesn't result in the cheap market phone either. It's just a smaller iPhone that would likely cost as much or more to make.
If iPhone 5 has any screen changes (I highly doubt it) look for a full 4" and not a millimeter less, with an entire redesign to accommodate it. Not just a 4" screen slapped inside a case designed around a totally different screen.
As far as the Nano, look for an iPod Nano-like product just big enough to fit radios for calls and txt. It will be a basic device, with no App store, (like the current nano), and it will be cheap to buy ($200 / free with subsidy) , contract free with full price purchase, and unlimited calls/txt for $50 a month, limited plan at $25.
Will be great for 10 year olds getting their first phone, and the adults with no desire for technology, or spending money of phones.
It would have to be this, to completely differentiate from the iPhone market.
This imaging such advanced products for the iPhone Nano are way, waaaaay off..