The Macalope .

People have long talked about an iPhone nano, but the Macalope doesn’t see what you can pull out of an iPhone and still have it be an iPhone. It’s a phone that runs apps. You take the phone out and it’s an iPod touch. But you take the apps out and it’s just a phone.

Bloomberg says the prototype, which it admits may never see the light of day, “was about one-third smaller than the iPhone 4, and it had no ‘home’ button.” No “home” button? How are you going to keep them home on the farm with no “home” button?

While he has no reason to doubt the story and knows there are , the Macalope’s still having a hard time imagining this device. How do you make an iPhone a third smaller and still retain the one thing that keeps it in the kiddies’ pockets: apps? You can’t just shrink your average iOS game by a third and have it still be playable and not look like hell.

One way to do it is to make the iPhone nano just like the iPod nano: have it ship with a core set of apps but without access to the App Store. Would that be popular? Well, if it were $200 off-contract or free with a contract, it might be.