Exact capacities are not known, but reasonable speculation suggests the line will top out at 6GB or 8GB. The announcement is expected to arrive alongside the release of movie rentals through the iTunes Music Store during CEO Steve Jobs’ keynote presentation on August 7. The iPod nano has not been updated since its introduction last September.        

Separate rumblings suggest that Apple has procured a large number of 40GB and 80GB 1.8-inch hard drives for use in an updated 5G iPod. While it’s not known when an exact announcement regarding the higher capacity iPods might take place, the new models are not expected at WWDC.

Apple introduced the 5G iPod with a 2.5-inch display and video playback capabilities last October. The company has since been hard at work on the sixth-generation iPod, which will feature a 3.5-inch touch-screen display. Apple was originally targeting an early-to-mid 2006 release of the new iPod and was hoping to launch the device alongside the new movie offerings at the iTunes Music Store, but the company has encountered technical obstacles that have since pushed the release back to early 2007.

In the interim, Apple apparently hopes to keep its iPod lineup fresh by increasing capacities. Price cuts, although unlikely, were also not ruled out by sources, who noted that component costs on the 5G iPod have dropped significantly since its introduction last year, particularly prices for the 1.8-inch hard drives used by the music player.