I imagine that Apple will go down this road, but improve upon it.
The other HD based video cameras that have been announced are severely limited by space. Some of them top out at 4 or 5 GB.
Look for Apple to make the device with a 40 GB HD in it, great optics, and a very small size.
Also, it has to be something that pros might be interested in, so look for expandability, removable HD, removable Batteries, detachable standard lenses, and the standard tweaks and settings. They will have to sell to pros that they no longer need tape to make films. Expandability is essential for that.
It will have the option to record into either DV or mp4, and I imagine it will have the same battery that the iPod has.
Also, Apple has the opportunity to make the best hybrid video camera/still camera. Most of them out there now are crap.
Slap a $999 price tag on it, call it the iCam, and we will all buy it. Well, maybe.
This is the year that mp4 makes its coming out party, and look for iTunes 4, and all the iLife aps to take advantage of the power of mp4.