One of the more credible iPhone rumors of late is that of a smaller, thinner plastic-covered iPhone with a 2.8" screen. I don't pretend to fore-knowledge about Apple's plans, but if this smaller iPhone happens, I would welcome it.
I plan to continue my combo iPhone + iPod touch approach. Here's why. I use my iPod touch about 80% and my iPhone 25%. The extra 5% is the overlap when I want to keep my place on one device while looking something up on the other.
iPod touch. I'm in a wi-fi hotspot about 90% of the time. Since the iPod touch surfs as well as the iPhone when wi-fi is available (and is thinner and lighter), I use it. I spare my iPhone battery and avoid missing calls which get routed directly to voicemail when I'm accessing the web from my iPhone.
iPhone. I use my iPhone for EDGE-based net access when wi-fi isn't available. I use it to take casual photos. I use it as a phone. And I use it to listen to podcasts while walking alone. I also prefer it for listening to podcasts or music in my car because it switches so seamlessly between hands-free calls and content.
In this 2-device division of labor, I could see myself using a smaller, more elegant iPhone with 2.8" screen. The iPod touch needs as much screen as it can get. I will find a way to carry a larger iPod touch or iPod tablet if one becomes available since the screen real estate is so valuable.
Apple wants us to carry 2 Apple handhelds. My experience of using the iPhone and iPod touch together makes me look forward to fitting enthusiastically into their plans.