TL;DR warning:
I think that this is the design for a new iPod nano that Apple will be unveiling next Tuesday. The fact that's it's computer generated doesn't necessarily mean it's not real. It might be a bit inaccurate, but case manufacturers only have dimensions to work with; they probably know very little about the actual surface, design, or technology inside the new iPod. Minor details like the non-flush clickwheel could simply be mistakes.
The thing is, I don't think this is a "step backward" as many people are claiming. The change from a tall thin nano to the current wide nano was simply that, a "change." Whether it was an "improvement" is arguable. The screen was undoubtedly nicer and the interface revamp was much welcomed, but not everyone was happy with the new form factor. The click wheel was shrunk down and ergonomically, I still think the 1G and 2G nanos felt better in the hand. The notoriously corruptible metal back also made a return.
With this new refresh, I think Apple is trying to take the best features from each nano to create the best lightweight, flash based multimedia device to date. It has the large, sharp screen of the 3G with the superior ergonomics of the 2G. Although perhaps not as pretty as the 3G, I actually think the design looks very sleek, simple, and efficient. The curved faces are not that pronounced, but does differentiate it from the 2G. It's not going to rock back and forth on the table, or at least no more than the iPhone 3G does. The complete aluminum shell (if that's even accurate, considering this is just a mockup, it could still have a metal back) does give it more protection and makes the nano more "rugged", further separating it from the Classic and Touch lines.
Now the new design does raise some questions about functionality, but if we saw the issues, we can be pretty sure that Apple has figured them out as well. They even have a blueprint for what NOT to do (Zune, anyone?)
Improved capacity is like a no-brainer. An accelerometer that adjusts the screen layout as the device is turned seems basic enough.
Held the normal way (vertically) it shows a traditional menu style, with some improvements carried over from the touch, such as showing the artist name when viewing by album. With the taller display, you can see more items at once, ideal for quickly finding your music.
Held horizontally, it can display the 3G split screen menu, display video, and use the Coverflow interface.
But that still leaves the problem of the sideways wheel. There are multiple solutions to that: small OLED displays in each click direction that changes depending on the orientation and function of the device. Alternatively, the entire clickwheel could be made out of Electronic paper/bistable LCD. Whatever the case, I think that a dynamic clickwheel, possibly touch activated, will be important in delivering the ideal experience with this new iPod.
I could be wrong, but it seems like the logical step if this is in fact the actual design. It's simply not like Apple at all leave something like a sloppy sideways wheel on such a polished product. It is, however, just like Apple, to take a not-completely original concept such as a morphing control interface (LG Venus, Moto Rokr E8), apply it brilliantly to a new product (touch screen on a phone? Genius!) and create something really great.