Originally Posted by SockRolid
My wild guess is that the small square screen is for the new shuffle. The current shuffle isn't selling well, and Apple might want to turn it into a fancier device with a touch-screen to boost sales. It would show a "virtual click wheel" that appears when the user touches the screen without swiping.
So what about the nano? My wild guess is that it will get a bigger touch-sensitive screen, that the separate click wheel will be replaced by the same "virtual click wheel" used on the shuffle, and that the screen will get larger. Both the new shuffle and nano would run an improved version of iPod OS, not iOS. (Maybe the nano could get iOS next year...)
The iPod touch will have almost all the features of the iPhone 4, except for the phone itself, and maybe no camera flash and a different case design. That means it'll get FaceTime and the A4 processor.
-A virtual click wheel makes no sense, especially on such a small screen. Navigation would be next to impossible with a virtual click wheel consuming all the screen real estate. There are better ways for navigating a small touchscreen.
-A shuffle that allows for more than shuffling isn't true to its name (admittedly the current one can also play playlists).
-Why shouldn't Apples smallest iPod be called the nano?
-Why would Apple take the current form of the nano and make an inferior touch UI (virtual click wheel and all) when they have iOS?
-This new iPod will be called the nano, why fight all the rumors and say it will be the shuffle when the nano makes more sense anyway?
-The shuffle will lose its reason to exist and will either be discounted or discontinued.
-The iPod touch will gain many of the things the nano had. The video camera is obvious, but even the FM radio is quite possible.
-The iPod Touch will eventually be available in different sizes. Since we haven't seen case leaks for this, it might not happen this time, but I wouldn't be surprised to see three sizes (the current size, plus one larger and one smaller) in the future (possibly sharing the same resolution). The smaller one would be a little bigger than the current nano, replacing it at that form factor and price point.
PS: The leaked iPod touch cases have a spot for a flash, so I would think a flash is probable.