Furthermore, I'm sure a lot less code would have to be adjusted than to make the code up from scratch. By your reasoning, having to create, from scratch, all that code should have been enough to prevent Apple from creating the first iPhone. Why would they do all of that? Why would they create a phone in the first place?
And like I said already, but seems to be ignored by all the people that want it so bad, Apple would need to create new software for this 'nano', and I don't see that happening.
Ignored, huh?
It seems you've ignored my comment. If you are resting your argument on all the code that has to be rewritten, then what would make them want to write the code in the first place? I have to imagine that adjusting the iPhone's code to fit a smaller screen, while difficult, has to be easier than writing everything from scratch, particularly because they have knowledge of what worked and what didn't, where the bugs came from, etc.
Here is the key: if Apple feels they can make more money off of all the code they have to rewrite than they could spending their money and time elsewhere, they'll do it. If the market is there, it'll happen.
For the record, I am not at all saying that it will happen. I'm just saying that it is possible. And, that if it did come out, I'd consider it for my next phone. I know that it might sound crazy to you, but people use cell phones that are smaller than the iPhone everyday, and yet their hands aren't all knarled from their palms cramping up. Amazing, I know.