Check this for the photos of the suppose new Ipod you decide if it's fake http://www.elecboy.com/index.php/2006/04/10/new-ipod-or-fake/
Hmm the link din't work as supposed so I think you must enter the page http://www.elecboy.com to see it.
I'm sure Apple has a prototype video iPod with a 3 inch touchscreen. Nintendo has shown it is possible to make a full color, 3 inch touchscreen, video-capable product for less than $300.
But I don't think these pictures are of a real product that's coming out in the next few months. I might be wrong, but I think features like these won't be out for a while yet.
We'll find out in May or June. :-)