I know apples not in to doing anything cheap bUT this rumor always seems to come up. I think there could be truth in the matter because when the 3G was introduced it has a lower price to gain more sales. I imaging the 3G cannot get produced for less for this would be the only easy option to create a even lower iphone. I think i have heard the iphone in europe is like $1000.
I think it makes sense for apple to introduce a $99 iphone. I mean they have the ipod shuffle at like $49 and the ipod nano. I bought the ipod classic 80G because I wanted the greater storage space and I bought the 8G iphone because I don't intend to use it as a music or media player. I think more options makes more sense for apple.
You know what makes way way way more sense than this?
If Apple dropped the price of the iPod Touch a little more and started advertising its ability to make calls over wi-fi using a Skype account.
Heck, they could even create their own service that works like Skype and build it into MobileMe. Anyway, the point is that they'd sell a ton more iPods...who cares if they sell more iPhones? If they're selling more iPods instead, then Apple doesn't care.
I'm not saying that will happen, but I find it more likely than an iPhone that doesn't have 3G! Yeah, that will make a great ad: The all new iPhone - Slower than before! It doesn't matter that the 3G version still exists, that's a very bad ad to be putting on TV for Apple. And why make something that you can't advertise?