Predictions that we would see an iPhone nano at Macworkd Expo this year turned out to be wrong but rumors persist nonetheless. There’s no indication that this alleged new iPhone is cheaper or smaller, but that’s a direction that would be in step with how Apple evolved the iPod. And if you really want something iPhone-like but smaller with multitouch and a keyboard, that’s coming soon.

Given the relatively big font size used throughout the iPhone display, Apple could probably get away with a somewhat smaller screen, perhaps 3.2”, but I couldn’t see it getting much smaller than that. It’s just that other technologies in the device seem so intrinsic to its operation that it’s difficult to see where Apple would reasonably cut corners. Flash memory is one variable and we’ve certainly seen Sony and Microsoft experiment with different storage capacities to diversify their fixed videogame platform.

I’m actually more interested in what Apple will do to advance the iPhone in the next generation or high end and that is an even bigger quandary. The iPhone 3G nailed the two biggest targets in faster data and GPS and I’d expect the next iPhone to have a higher-resolution camera with autofocus. That’s an easy win.. Video capture would of course be nice especially for early adopters who use Qik and similar services. It would be great to see the iPhone be a more active contributor to iLife content.

But the other hardware gaps seem like things that Apple purposely wants to avoid – a physical keyboard, a memory card slot, and stereo Bluetooth. Perhaps, though, Apple will finally open the dock connector to third parties. It would probably take about three days for companies to announce add-on keyboard cases that turn the iPhone or iPod touch into a clamshell device, which would be a godsend for composing anything longer than a paragraph on the go.

The other big opportunities are software improvements. There are three that top my wish list:

1. Just as the original Mac moved from single-tasking to multitasking, so must the iPhone. Apple displays Safari pages in a manner similar to the way Palm isplays applications and could extend that system to applications. If Apple isn’t going to embrace true multitasking yet, at least use a tile metaphor to streamline application launching. But true multitasking seems like an eventuality to me as Moore’s Law continues to reign.
2. Organizing icons around the home screen gets unwieldy with many applications and screens. Screens should have names like folders. While we’re at it, how about a setting to automatically update applications?
3. Universal – or at least e-mail – search. This is the killer Blackberry feature.