Here's what I don't get...
There are Nano knockoffs all over eBay, Craigslist and the 'Net in general - similar form factor, slightly larger screen, capable of playing more file types including video, and also with an aluminum case. Why would apple make the Nano form factor so "fat" (read: as potentially wide as the regular iPod), when the slimline is one of the strongest sell points? Plus, do you really want to watch video on a screen *that* small? I find the screen on my 5G "about right," meaning that I don't use it as a substitute for full-screen DVD movies but when I'm trapped on BART or flying cross-country it works for me.
Steve did mention a decrease in sales in Q4 due to an "upcoming product transition." I wonder if Apple would be as bold to completely "unify" the existing Nano and video into a single device, and then offer a higher-end multitouch iPod in early 2008 (the long-awaited "iPhone" without the phone)? I can't imagine that the iMac revision would be this transition, unless he may have been referring to the Mac Pro and XServe which are sorely out of date and won't get revised until Penryn release...