Sounds like tosh to me. Several reasons why:
1) Apple wouldn't use OLED screens. They are always slagging them off.
2) Apple wouldn't release a 5.6 inch iPad. That would be like copying Dell.
3) If Apple were to come out with 5.6 and 7 inch versions of iPad what apps would they run? The 5.6 inch version could run the iPhone resolution, but that would reduce pixel density and therefore offer no advantage over the iPhone/iPod touch. The 7 inch would need its own class of app as it would be too small to use with the current iPad UI.
4) "People don't read any more". OK, so Steve may have backtracked since he said that, but with iBooks now available on iPhone/iPod touch, what advantage does a slightly bigger screen give? Surely, Apple wouldn't make a device whose primary function was book reading?
5) They're still launching iPad version 1 around the world and can't make enough of them. The 9.7 inch version won't be altered this year, even if it is supplemented by new smaller cousins, and even if the smaller versions incorporate upgrades (anyone remember back in 2003 when the 15" TiBook sat next to the 12" and 17" AlBooks for 9 months before getting an update?). There's no commercial reason for them to do so.