We expect the focus of the new iPhone will be iOS 5, a speedier A5 processor and a higher resolution 8 MP camera with a small possibility of a larger 4 inch screen,” Blair wrote. “We believe the casing will be largely similar to the iPhone with some particular modifications to the antennae [sic]. We don’t expect a second, dramatically different iPhone to accompany this as we don’t think Apple needs to have 3 models in the market to address the high end, mid-tier and low end since the iPhone 4 (with memory lowered to 8 GB) will drop to $99 and effectively attack those markets.
http://www.macrumors.com/2011/09/21/...ne-next-month/

An iPhone 4S alongside a cheaper iPhone 4 does seem the most likely outcome. Speculation had been that a redesigned iPhone 5 would be launched with a cheaper iPhone 4S, but that certainly wouldn't follow Apple's past activities with the iPhone line. That would put the delay in launching a new model squarely at the feet of iOS 5 and iCloud development constraints, which I know many will be currently questioning as worthy delays of new hardware.

I'll be disappointed not to have a more iPad/iPod Touch-like iPhone 5 in my hands this year. But the promise of iOS 5 and iCloud is substantial, and if Apple are putting all their eggs in this basket, as they appear to be, then it certainly fills me with confidence that what we're about to receive will have been worth the wait.