I have an idea for the next Apple killer device... it seems to make a lot of sense to me. It will be almost the same size as the current ipod, but in a clamshell enclosure (like ipod with a cover). There is the same scroll-wheel, and the cover houses a LCD screen that is capable of displaying thousands of color and 640X480 resolution.
A camera is located right on the axle that connects the screen and the body. The axle is motorized so that at a press of the button and the camera swivels back and forth (that is, push a button and shoot self portrait, push it again and it goes back to the normal position so you can shoot something else). The form factor is somewhat like the Sony CLIE NR70V but thicker because of the hard drive). The wheel will be used to zoom in or out while in record mode (record/playback can be toggled by a new slide button on the right-hand side where you rest your thumb if you hold it with your right hand... hmmmm maybe even have a special left-hand version?). The fact that the display is on a "flip" means that you can see it better even outdoors in the sun.
While in playback mode the wheel will be used to browse (photos) or edit (video). The enclosure will incorporate a design that allows a compatible accessory to be snapped on... these accessories can take power from the firewire port. A great accessory will be a snap on light like that flylight thing (except that uses USB and must be pretty dim).
OK here is the killer bit... the device captures photo in jpegs and video in MPEG4 format, with high frame rate (24/s?) and 640X480 resolution. I know there are other devices that are capable of this (like the rumoured Sony CLIE NX70V and a Toshiba camera but in much smaller rez I think), but what sets this apart is the simple fluid interface (sort of like the current B/W PIXO but in color) and its ability to do simple editing using the wheel. If the current iPod is a portable iTunes, then this new device is a portable iMovie AND iPhoto. The wheel is perfect for controlling timelines, and navigating in a gallery (I imagine that in browse mode, the photos would glide by as you scroll, like a long roll of film). It will also have a headphone jack and a microphone (this should be on the same axis as the camera) so you can monitor sound while recording, and of course listen to as many MP3s (or probably MP4s) as you want. The cool thing is you can use these files as background music to add to your videos or slideshows! Other editing functions should include basic cutting and dissolves hopefully. So you can cut a simple movie right after you have captured the footage. What would make it even better is if iMovie will import MPEG4 files so you can always use firewire to connect and download to your Mac , then use iMovie to edit. There should be some ways to synchronize them just like with iTunes. Pictures will automatically go to iPhoto. The big LCD screen will allow it to do simple photo editing like brightness, contrast etc. Photo stitching function for making panoramas will work very well too bacause of the size of the display... 10 gig model is in crystal (white), and the 20 gig one is in titanium. The battery needs to have more juice than the one in ipod now.
What should Apple call this if they release it? How are some of my guesses: iPodmovie, iPodcam, iPodvideo. It will be really cool if the cam can have a macro mode then Apple can sell a stand (with built in light) to turn it into a scanner. It will be your scanner while it is "docked" to the computer! I think this will be a huge hit!!! I would pay USD1000 for this. Would you?