I voted Nano, because Apple already has a fantastic smartphone and is doing very well in the smartphone market. I don't see a market for an HD smartphone, although one may develop in the future (and on that basis, Apple might make one and try to "create" the market). But overall, I think having two smartphones would be counterproductive: they'd be marketing two products to essentially the same group.
I can certainly see an iPhone HD in the future, but I do not see it as a distinct model from the iPhone. I think it would be the natural progression of the regular iPhone.
OTOH, there will always be a market for simple, cheap cell phones, like what the iPhone Nano would (presumably) be. Such a product would also be a "gateway" device to Apple products, imo, which would help sales of higher-end products.
From a business POV, I think entering the consumer cell phone market makes more sense than entering a nearly non-existant market. Or maybe they'll announce the next-gen iPhone will be HD and a Nano! 😀