The rumor has come straight from the Japanese blog Macotakara apparently Apple is in the process of redesigning the iPod nano and making it larger not smaller for once. The last nano is the smallest nano Apple has ever made with a touch screen interface. The rumors from the Japanese Apple blog stated that this nano has got a remake to look like a smaller version of the iPod touch. The article stated that the nano will be a rectangular shape again with a home button will the one on the iPhone and iPod touch.
Macrumors have commented on the story saying that:
Given that the screen size on this redesigned iPod nano would appear to be substantially smaller than the iPhone/iPod touch, it seems unlikely that the iPod nano would run iOS apps. Instead, Apple is likely to use a custom operating system and apps skinned to resemble iOS as found on the current incarnation of the iPod nano.
It’s definitely time for some refreshes to the iPod line but just how reliable this rumor is, we can’t be sure. The article also didn’t state when this would be released it would either be when the iPhone 5 is release or not until the new year looking at Apple’s strategy for releasing new products.