According to an article the UK's Daily Mail posted on their website, Apple may be preparing to release a smaller, cheaper version of the iPhone this Christmas; what they're calling an 'iPhone Nano". They claim the phone will be available for 150 British pounds, and will work on O2's "pay-as-you-go" network. That's about all the article says, so with such few details it's difficult to put all that much trust in the stroy. We'll keep you posted as soon as any more news drops.
The Daily Mail: Apple To Launch The iPhone Nano In Time For Christmas