As much as I wish this report was true, I highly doubt it. Like a couple others have said, it'll completely destroy potential iPhone sales.
Even if it is placed at the same (high) price points (the price justification being "iPhone - cell phone + HDD" = 6G iPod) it won't require the very likely insane monthly fee.
To be quite honest, I have a cell phone that works. It's small and cheap and does what I need it to. The only reason I would buy the iPhone is for the non-phone functions, and if these were implemented into an iPod, there would be no reason for me to get an iPhone. The impact of an iphone on my pocket-space real-elsate would be minimal and the impact on my phone bill would be tremendous. An iPod like this would be my technological "saving grace."
That being said, it won't happen... at least until the initial iPhone hype has died down. Like others have said, this will be a Christmas '07 must-have item.
I wouldn't be surprised, however at another minor upgrade... better HDDs, better battery life, better display, maybe even a new color or something... a 5.6G if you will, but Apple will not obliterate all hope of the iPhone becoming the revolutionary device they say it will be releasing a sweet alternative to it.
-Clive