weee.
I think that this could be true, probably wouldn't be revealed in Jan. But I can see a release around WWDC time in 2009 or atleast an anouncement of it and a new iPhone based on LTE.
I think the form factor would be good for those who don't like the "bulky" iPhone currently, so people just want a smaller phone, but with the same functionality, and I see this phone offering just that. Plus this "might" be able to get us to $99 price points, especially if it comes equiped with 4GB of memory, and have a $199 8GB model, or make it $149. With nice aggressive pricing like that Apple would surely dominate the market with it.
It would also create the form factor for the "iPod Touch Nano", cause I don't see the click wheel staying around for much longer. People want larger screens on smaller devices and the only way to do this is to turn the entire gadget into a screen. So I say bring it, leave the iPhone in the size it's in and introduce a iPhone Nano, and you will see tons of new sells due to the size and pricing alone.
Hope it's real, but I am not betting on it. 🙁