Everyone will probably tar and feather me for this but I still have a hard time believing that a iPhone '5c' will be announced. Except for the MBP power brick and apple tv, Apple doesn't do plastic in its current lineup. Why start now? It lessens the brand. IMO all of these leaks just appear to be cheap knock offs.
It lessens the brand? That's your argument? Apple has done plastic since forever. MacBooks, iPhone 3G, iPhone 3GS, iPod, etc. Apple does plastic. Besides that, what is the brand? Tim Cooking has been talking a lot about 'stickiness of the ecosystem'. I think 'the brand' is becoming less 'well designed hardware' and more 'functional, pleasant and easy to use ecosystem'. The brand is the ecosystem. It's not the hardware, it's iOS (and OS X).
For Apple to continue making sustainable profit (growth), a low cost iPhone is essential since the market is getting commoditized, meaning cheap phones are getting better and better. This will hurt iPhone sales in the long run, because a $199 can do a lot of things just as well as a $699 iPhone. I know, in the US the iPhone costs just $199, but that's still a $199 more than cheap Android phones that serve the needs of many just as well. The ASP of the iPhone has already been steadily declining because the old iPhones are getting more and more popular.
Using last year's top model as the current budget model is a difficult strategy. Why? Because the device was not designed to be cheap. If was designed to be the best, yet people who buy 'budget' iPhones don't always need the best, they just need an iPhone that serves their needs. Conclusively, targeting the mid-end market with last year's high end phone is not exactly a good fit. Also, take into account that premium materials (glass, aluminium) etc. have a pretty stable price, thus forming a constraint on how low the cost price can drop for Apple. Furthermore, I can imagine that Apple wants to reduce fragmentation by maintaining one screen size, one resolution and one connector.
iPhones are just devices to get people to use the Apple ecosystem. As hardware is becoming less relevant in general, the ecosystem becomes more and more important. In order to survive in the long run, Apple needs to get their ecosystem to as many people possible. To do so, they need to maintain their market share or improve it. You can't without a cheaper iPhone.
A cheaper iPhone is vital for the future of Apple and iOS in general.