Killing all rumors, Apple announces a new iPod with color display, the iPod Color.

The new iPod features a 2 inch (diagonal) 65,536-color LCD with LED backlight. The player comes in 40 and 60GB hard drive configurations.
It can display photos in JPEG, BMP, GIF, TIFF and PNG formats. It is not a personal video player. The iPod Photo measures 4.1 x 2.4 x 0.75 inches and weighs 6.4 ounces. It is a bit thicker than a standard iPod. The battery holds for up to 15 hours of music playback and up to 5 hours of slideshows with music.

The 40GB iPod Photo (M9585LL/A) is available for $499, and the big 60GB model (M9586LL/A) sells for $599. More details on Apple iPod Photo product page.

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