Interesting rumors have leaked Engadget's way. The new iPhone will use the ARM processor that the current iPhone is using. It will have A-GPS, triband HSDPA (850 MHz, 1900 MHz and 2100 MHz).
Also, out of Crunchgear, we have the iPhone 3G photos above showing a sleeker, smaller iPhone. The iPhone's viewing real estate has been slashed down, according to another rumor. The new iPhone is going to be more phone like and may boast visual chatting. Great stuff, but will the changes improve iPhone sales?
Update: The 3G iPhone was officially announced June 9th at Apple's WWDC. No new processor or smaller size, but A-GPS and triband HSDPA are in!