Just a quick note...
To those saying that $149 is "too much" and "it should be $100":
http://www.crucial.com/store/partspecs.asp?imodule=CT1GBU2&cat=drives+storage
Crucial are selling 1GB usb thumb drives for $90. So you want to add an iPod to that for $10? I doubt that's even possible...
And another thing - one of the major appeal of the smaller flash players is that they use a usb interface and can plug directly into any machine that's so equipped. If this iPod flash needs a dock/connection cable, I reckon it's going to be a little frowned upon. Not so compact when you add all that crap in.
To be honest, that's swaying me away from buying this rumour. Given TS's current relationship with Apple, either (a) This is more leaked info and hence they're idiots, or (b) This is mere speculation. The other possibility is that this is actually deliberate *mis*information.
It's entirely possible (however unwise) that TS have decided to try and show Apple what *bad* publicity can do. TS could probably make anything it likes up right now (Newton-based iPhone, with flash iPod based player built in) and people will listen as they are now perceived as having an inside scoop. If this one gets picked up by CNN and turns out to be fake, it could be worse than the headless Mac not showing up, as the iPod currently has much greater brand recognition.
Bear in mind that TS's "success rate" at the moment is really based on everyone assuming they're right. We haven't SEEN a headless Mac at their configs and price points, we haven't SEEN iWork, we haven't SEEN Asteroid and we sure as heck haven't SEEN a flash-based iPod. All we've seen are some incredibly specific "rumours" and Apple's Lawyers.
Sorry if some think this is OT, but I reckon any rumour coming from TS right now should be treated incredibly cautiously. And if you think this is all just "clever marketing", I ask, what is Apple getting out of this? Exposure? If so, you'd better hope that the reality revealed next week either meets or surpasses the rumours.
The media is fickle and LOVES a backlash.