At Apple’s earnings call it was mentioned that Apple would be having a product transition soon and that it would have to lower margins because of it.

That of course caused a wildfire in the blogosphere with speculation of everything from a Mac tablet to cheaper notebooks.

The two possibilities that make the most sense is that Apple could be releasing sub-$1000 notebooks. Piper Jaffray said Tuesday that there is an 80% chance that Apple will introduced redesigned MacBooks and maybe even MacBook Pros at the $999 price point for the MacBook and $1799 for the MacBook Pro.

But, this product transition could be a cheaper iPod Touch which would transition the iPod product line from the old click-wheel style iPods to the new touch models. If the iPod Touch was priced at $199 it would be much more comparable to the iPhone 3G and really the only differences being GPS, Bluetooth, integrated speakers, and the GSM radio.

I’ve thought for a while about the possibility that Apple would drop the price of the iPod Touch and integrate GPS into it as well and then releasing a turn-by-turn application for the TouchOS. This would essentially turn the iPod Touch into a navigation system as well as an iPod and internet tablet.