Earlier we had heard that the company was making an alternate iPhone that would be anywhere from 1/2 to 2/3 the size of the iPhone 4, based on prototypes supposedly seen by insiders. The Times cites a "senior Apple executive" who strikes those claims down.
The Times does confirm, however, that MobileMe is expected to get an overhaul that includes making it free of cost.
It's hard to know what to believe with all the rumors and counter-rumors flying. Obviously, nothing is certain until Apple goes on the record. Manufacturing concerns have certainly plagued them in the past (got that white iPhone 4 yet?) but releasing only one new iPhone and stripping it down to cut costs could be risky.
Is it summer yet?