Rumors and speculation about the next generation iPhone have been coming out of the woodwork lately; most signs pointed to Apple working on a smaller, cheaper iPhone model that would allow a wide variety of consumers to adopt the product. In fact, Neowin reported on that exact rumor twice - based on reports by both Bloomberg and later The Wall Street Journal - which seemed to support the speculation.
However, now The New York Times is claiming that Apple is doing no such thing. They cited someone "who is in direct contact with Apple," who stated that the company is not working on a smaller iPhone "at this time" because a smaller iPhone would not technically be cheaper to produce than the currently sized model. Aside from that, a smaller iPhone would be difficult to operate and would apparently cause developers to rewrite their applications along with other fragmentation issues, which Steve Jobs has always voiced against.
The New York Times' sources say that Apple is looking at ways to make the iPhone cheaper and giving it features that would appeal to a wider consumer base, like the ability to control the phone through voice command as an alternative to the virtual keyboard.
The New York Times also got behind the recent MobileMe overhaul rumors but was quick to redact N97 being a code name for an iPhone Nano, saying it was the Verizon iPhone code name.