I don't think Apple will mess with what is a successful formula. Remember the iPod Mini/Nano basically was Apple's reach out into flash based devices, and now is becoming the path for its future devices. I don't see what a iPhone Nano would bring to the table. The iPhone, because it's a touch device, needs the screen to be the size it is. The iPhone Nano screen, be it the same DPI or a higher DPI to keep the same resolution, will be effectively harder to use as a touch device.
I also looked at the secondary backlight link, and that looks terrible. How many people will say this means my screen is breaking, etc. ??? Ugh. That does not look like the typical Apple execution and attention to detail. (I know it's a mockup/prototype, but still.)
Like others say, I'll bet on a 32GB iPhone at MWSF over a iPhone Nano. I still hope they won't come out with the 32GB one anyways since that'd mean my 16GB's status is downgraded. LOL