Cheap/plastic iPhone?...I don't like this at all, for Apple's profitability sake...cannibalization will take place, and pushing a segment they don't have to compete in.
Instead, why not look at something more along these lines for phones?
Low end: iPhone Nano (2.5" screen). lowest cost phone with low cost data plans. Durable but with no 3rd party iOS apps.
Medium end: outdated iPhones (4 or 4s). low cost phone with high cost data plan.
High end: newest generation iPhone (5s). high cost phone with high cost data plan.
Large screen: newest phone with 4.5" screen. high cost phone with high cost data plan. Possible stripped down just a bit to keep retail price down while maintaining profit margins.
I admit there's no perfect line of phones, but the above seems to avoid unnecessary cannibalization but addresses the major/growing market segments.
Apple should NOT compete in the cheaper, plastic, 3.5" screen market segment...give that one away to Android. Apple already has a fairly cheap phone in that category, it's called a very good iPhone 4 or 4s.