This makes sense. The clue is the os 3.0 backward compatibility. So there'll be a thinner/lighter phone that's basically all the same features as the current iPhone 3g for $99 or $149 for 2 year AT&T, and then a beefer, faster, video-camera bearing iPhone HD starting at $299 w/ 2 year AT&T.
Wow, familiar? They do the exact same thing with iPods.
I wonder if they mean smaller screen too, or if they just killed the bezel and made it skinnier?