Rumors are flying that we'll see 12GB iPod Nanos by this Fall. 12GB would definitely hit a sweet-spot as far as player capacity is concerned, imo. Then, if they price it at only $250, I think they'd have yet another winner on their hands...

"A recent Gartner report points out that Apple's buying power may be able to press NAND flash prices low enough for greatly increased capacity Nano's when their rumored refresh appears in the fall."