I doubt Apple could ever release a cheaper iPhone, which by definition would be smaller and/or have less functionality.
What is Apple's major argument against Android? It's segmentation. "Too many phones", they tell us. Apple has 1 phone, so their OS just works, as do the apps in their store, not counting apps that have to work on 4 versions of the iPhone + iPad + iPod Touch, anyway... moving on.
If Apple released a smaller, weaker, less capable phone, imagine the outcry when Facetime didn't work cause there was no front-facing camera on the iPhone 4s (s is for small). Imagine the complaints when the new phone had a smaller 320x600 display instead of the new cool retina display. Only 2GB of space!? I can't put much music or many apps on my new phone, bummer!
I mean, the latest iOS doesn't support anything pre iPhone 3GS if I'm not mistaken, but it's magically going to support a less expensive future phone, one that might have even weaker specs than an iPhone or iPhone 3G? This I gotta see.