So my previous not-such-a-leap entry turned out to be true, and Apple have revealed a new iPod with a bigger screen which can play video. Gizmodo has the best overview.
In retrospect it was obvious - iLounge posted some adverts showing the new iPod in outline and Andrei remarked that it was widescreen. The stats now show that to be the case - 16x9 screen with 2.5 inch diagonal, 320x340 pixels and 260,000 colors.
The downloadable content is interesting, and supports the idea that this is just designed to give Apple an idea of how the market is going to respond. Apple can test the water without splashing too much cash. Remember that new iPods all had colour screens before this announcement anyway...
UPDATE: Slashdot reports that Apple has updated their list of car manufacturers which offer in-car iPod support. Could this new iPod be a hub for a new breed of ICE sytems? If it's baked into high-end vehicles then this could be a non-trivial market.