A Mercury News article reports on Apple's new 'iPod Mini'. According to this article:
With the Mini iPod rumors over the past few weeks being at least partially accurate... it's not unreasonable to conclude that even smaller capacity iPods are, in fact, being prototyped at Apple. Whether Apple can reach a significantly lower price point, remains unclear... but the introduction of the 2.0GB Cornice Drive is likely not coincidence alone.Phil Schiller, Apple vice president of worldwide product marketing, also said Apple had not ruled out making an iPod at capacities smaller than 4GB.