This post is a bit old now, as I wrote it up as a draft, and never finished writing it. Here it is, some weeks later.
I was listening to Marketing Online Podcast from September 30th entitled "What Harry Potter Taught Us About Podcasting and Directories" when I heard this, and I think it is a good bit of rumor. If you download this file and listen from 27:03 to 27:49 in the timeline, you hear Alex Mandossian sharing his opinion about the iPod Shuffle in relation to the new iPod Nano.

I have this crazy crazy theory... I think the Shuffle without the screen... was intentionaly done; just like when Coca-Cola came out with the new formula, and then renamed it and 'Classic Coke' became the hit again. Well I think they went to 'Classic iPod' with the screen, and they just went up 1 Gig... just so they could get penetration. I think people are trading up right now, as we do this podcast.

Your thoughts?

I agree. Even if it is not the intended outcome, the 'New Coke Effect' is what happened anyway. I honestly don't know why they have the shuffle at all, but I guess $100 for a 512MB player is mostly affordable, so they now have 3 teir pricing along with 3 levels of storage and functionality with the product. Taking in to light that the standard iPod now plays video, you have the Shuffle, which just plays music, the Nano, which does Music and Photos, and the iPod, which does Music, Photos and Video. A harmonious existence, no overlap between products like they used to have between the Mini and the iPod, just choices A, B, and C, and then two different sizes and prices to choose from with each. Pretty nice.