According to what appears to be an ad from T-Mobile Germany (the nation where T-MObile's corporate parent Deutsche Telecom is based), a 16GB iPhone compatible with that Germany's 3G mobile infrastructure will be hitting the German market on November 12.
Converting from 499,00 Euros, we come up with $687.00 U.S.
Official corroboration of this ad's legitimacy has not been established, but I have been hearing reports of a more powerful iPhone device in the works ever since the iPhone debuted in late June. In fact, a reader said that an AT&T Mobility customer service rep read similar information to him off a sheet that was supposed to be top secret.
No word on a 16GB iPhone in North America- but I don't think Apple would go too long without satiating memory-hungry U.S. iPhone buyers. Especially in shopping-heavy 4Q.
If this 16GB iPhone ad and its resulting implications are above board, that might explain the discounting of the current 8GB iPhone. Move product at a lower price point and then present a two-tiered model where the current 8GB iPhone might wind up at, say $299, and the 16GB (or even a 12GB) at $599, or maybe even a little lower.