Australian site Smarthouse is reporting that insiders at Taiwanese manufacturing powerhouse are saying that Apple is definitely working on its own phone. I'll believe it when Steve Jobs pulls it from his jeans pocket at a keynote and pronounces it incredible, but it does seem like a logical move: I'm not sure if there's a single phone in the world that's at good at doing what it does as the iPod is at doing what it does. A terrific music phone could be the kind of game-changing product that's Apple's core competency.
Playing devil's advocate, though, designing wireless phones is no cakewalk--there's a reason why there aren't all that many companies in the world that do it. Even with help, it would be a huge step for Apple.
And the swiss-army knife philosophy of today's phones seems anything but Jobsian. Would the iPhone play music, capture still photos and video, do e-mail and browsing, and be a mobile gaming platform (oh, and let you make phone calls)? Or could Apple get away with introducing an elegant device that did voice, music, and possibly video extremely well--and didn't even try to do anything else?
Also unclear: Whether Apple can build a phone which delivers a true iPod experience (with easy iTunes downloads) which carriers--who'd probably rather sell their own music and muck up the interface with their own features--will be willing to carry. Or maybe Apple will become a Virgin Mobile-like virtual wireless carrier, as has been widely rumored/speculated upon? (Apple is most Apple-esque when it controls the whole end-to-end experience.)
In any event, the Web isn't waiting for Apple to actually make a phone to ponder what such a device should look like. This Google Images search pulls up an amazing array of homemade iPhone concept images.
My favorite fake iPhone (I found it at Eyebeam, although I can't quite tell if it originated there):