Macrumors points out that a company called Cornice "has been producing 1inch 1.5GB Hard Drives since mid year that go for $65/each in lots of 10,000. Cornice was reportedly trying to get these prices down to $50."
The CNet article they refer to describes the technology as follows:
"The Cornice drive is essentially a minimalist hard drive that has been shorn of any materials not needed for portable electronics. The drive, for instance, doesn't have its own internal, dedicated pool of memory; instead, it uses the memory shared by the rest of the device to cache data. The SE doesn't have rails, so it can't be removed from the host device; by contrast, the drive is planted on the motherboard, and transfers of files are accomplished through USB (universal serial bus) ports." link
This is truly getting interesting. As readers have pointed out, 2 GB in flash cards would make the new iPods cost prohibitive as they would be even more expensive than the current ones. Using this technology though, Apple could pull it off and still reap in quite a substantial profit per unit while creating a new form factor and price that would make the iPod even more attractive to potential buyers.
According to a CNET story, Apple has agreed to let HP sell iPods in "HP blue" that will feature the same design as the current (big) iPods, but will not bear the iPod name. The deal will go into effect next summer.
'The way we look at it, HP will be reselling an iPod device,' said Schiller, who noted that the device will display the Apple logo at start-up and will work with all of the accessories made for the white-hued Apple varieties.'
HP will also ship all their computers with iTunes pre-installed. If Apple can sell 2 million iPods in two years (730,000 of which were sold in the last quarter alone) this new deal should do wonders for iPod sales. Apple seems to be very aggressive in keeping their player the number one digital music player on the market.