mhouse: A miniHDD would not lower the price point to $100, even without considering Apple's penchant for large profit margins.
A point of clarification: The Rio Nitrus uses a special 1.5 GB hard drive manufactured by Cornice. Cornice has only one capacity so far, 1.5 GB, and as far as I know, has no public plans to diversify its product line. Its drives are starting to appear in portable entertainment devices because of their lower cost and fewer number of parts, in comparison to Toshiba and Hitachi offerings (all CF HDDs).
Cornice hard drives do not bundle the firmware and control chips into the hard drive casing, whereas Toshiba and Hitachi microdrives squeeze everything you need to interface with the HDD into a 1" inch square. This is why Cornice drives are cheaper. They keep the firmware on chips outside the HDD casing, but inside the portable device.
The Compactflash drives that everyone is talking about are significantly more expensive to produce, and thus drive up portable-device prices. If Apple is going to reach anything close to a $100 price point with a miniHDD player, it's going to have to go to Cornice. (Unless it can convince Toshiba to sell microdrives at below manufacturing cost, which is not happening)
As for flash... I actually started writing this post thinking that Apple would go HDD, but now I'm not so sure. Each of Apple's products is distinct from every other. Let's consider its product lines: monolithic G5 desktops, table-lamp iMacs, all-in-one eMacs, snow-white plastic iBooks, matte aluminum Powerbooks. All of these are absolutely distinct in their design. If Apple is going to introduce a MiniMP3, it'd try to differentiate the new product from the iPod. Thus, a completely new form factor is pretty certain, but this need for uniqueness may make Apple opt for flash memory's form-factor flexibility. (you can make a flash mp3 player into absolutely any shape you want)
Also, no matter if they opt for miniHDD or flash memory, the price point won't be low enough to make a clear distinction between the iPod and the new mp3 player. Thus, Apple may use flash memory in order to cater to a different user base. (zero moving parts = high impact tolerance = no skipping no matter what)