Yeah. Moto and Samsung ship phones with processors that are a few generations old, but they update the LTE banding, and you end up with a $200 phone that can get all the latest bands for it's carrier. That might be the model for Apple's $350 phone, as they don't want to enter the low end of the market, but they also can't live entirely in the $700+ high end, as evidenced by the success of the SE and 6 on prepaid.
Sadly, there wouldn't be a headphone jack. I think they should expand it a bit, if only to put a slightly larger battery in. The size of the 1st generation Moto G is quite appealing, and smaller than most phones today, but bigger than the iPhone SE form factor.
They could take the 7 design and go from there, but what seem nuts to me is everyone talks about how hard or expensive it is to make a new form factor of device, and yet Samsung and Motorola, among others, are constantly making different variations on their designs, year after year, for multiple models, and selling them profitably for $200. If they can profitably make a $200, Apple should be able to profitably make a new iteration of a $350 phone every year that lives in the iTunes/App Store/iCloud ecosystem for people who want that balance of price, features, and ecosystem, and add updated LTE banding with B14, B71, etc, while they're at it.
If Apple could do what they are doing on the regular iPad, which I got recently, with a 4.7 inch screen and price it at $349, or even $399, they would have a winner on their hands.