I love the idea of a smaller iPhone. That is why I also report about this warmed-up rumor about an iPhone nano that UK's Daily Mail reports vagely about.
Rumors about the iPhone nano or even the iPhone shuffle complete with artists' renditions appeared already over a year ago.
The Daily Mail reports that the iPhone nano would be available in time for Christmas at up to £150 (~$296) for pay-as-you-go customers by O2.
The report also mentions that the iPhone nano would have a screen on the front and a clickwheel on the back and that the phone numbers would be input from the backside.
This guess stems possibly from the Back-Side Interface for Hand-Held Devices Patent Apple filed last year.
I would not hold my breath for an Apple iPhone nano release coming this year. Apple will be more likely to update its iPod nano, MacBooks and maybe launch a netbook or MID device.