mhouse:
I think the only way they're going to hit anything close to a $99 price point is if:
1. They sell at a loss, which won't happen, considering it's Apple we're talking about.
2. They go for a low-capacity flash player, and I mean 128MB/256 MB when I say "low".
Thus, Apple can now choose to go for two things:
1. High-impact users (sports, running, etc.) If this, then they'll go for a low-capacity flash player, and maybe consider the $99 price point.
2. Mid-capacity (Cornice HDD, microdrives, StorCard (though this is farfetched)) smaller-form-factor HDD player, which will fill the same niche as the Rio Nitrus and Creative MuVo2 (both with Cornice drives, might I add).
So, IMHO, I think they'd go for a flash player, as the only advantage that a miniHDD offers is a smaller form factor. It doesn't fill a different niche. Every Apple product fills a different niche, and each niche has only one product line filling it. It's perfect. The iPod fills the carry-around-a-ton-of-music-which-can't-stand-prolonged-jostling jukebox niche.
I really don't see a point in introducing a smaller version which fills almost the same niche.
My 2 cents.
savar:
Why in the world would Apple use a BIGGER form factor for a 2GB/4GB iPod? FYI: The current iPod uses a 1.8" HDD. Putting a 2.5" HDD in a "mini iPod" would be a bad marketing move, IMHO. See above for the argument in support of flash-based.