Those of you insisting that it the Nano will maintain touch screen capability are missing the entire point of offering a less featured model.
#1 This product will be geared toward the younger market. This is not a MAYBE. They will not release an iPhone nano with adults in mind. Are we aware of how many 13-19 year olds carry a cellphone and an iPod nano? The numbers would stagger you. Which leads into number 2...
#2 This will be 1 device to combine the younger market's cellphones and ipods. The touch screen is not the incentive to buy...this factor is the incentive to buy.
#3 A touch screen would never jive with the 13-19 year old market. They can't handle it. It will be trashed within hours, or days. Apple would either be replacing every lother one they sold, or be pissing off a lot of customers who (or whose children) broke or signifcantly injured their phones within a very short amount of time.
here is a quick mockup i did based on some of the others seen in this thread. Expect full use (and maybe some new implementation) of the clickwheel, along with navigation that looks very much like the iPhone, but feels very much more like the iPod:
(p.s. I changed the SMS icon to blue because i view those as top 2 functions for younger cell phones and 2 green icons looked bleh)