All signs point to that being a hard drive based iPod classic with a large screen (of a different ratio to the iPhone). This is due to the headphone port being on the top left of the device and he dock connector on the bottom.
The patent shows it would have network capabilities, which leads me to believe that this device would have iPod touch features such as Safari and Mail, as well as other apps.
The clickwheel? The centre button would be the home button, and the clickwheel is there to save battery life when you only want to run the iPod app, which would look like the touch app and function like the current classic.
Why the need to save battery life? The touch screen takes up an awful lot of space that would previously hold the hard drive and battery. To stop it from being too chunky the battery may be significantly smaller than the curent classic, more like the touch. But of course with a 120GB HDD