Think MacBook screen, possibly a bit smaller, in glass with iPhone-like, but fuller-featured Multi-Touch. Gesture library. Full Mac OS X. This is why they bought P.A. Semi. Possibly with Immersion's haptic tech. Slot-loading SuperDrive. Accelerometer. GPS. Pretty expensive to produce initially, but sold at "low" price that will reduce margins. Apple wants to move these babies. And move they will. This is some sick shit. App Store-compatible, able to run Mac apps, too. By October at the latest.
Gizmodo has also blogged about the rumor. If the rumor is true than people longing for a type of Apple tablet will be happy. Wired also recently weighed in on the rumor but like everyone else they also don't know what Apple is really going to do next.
Here's a concept video of what a MacBook Touch could be like. (via The Mac Oobserver)
If you can handle a PC (and most Apple fanatics cannot) there are already some touch PCs out there such as HP's TouchSmart or the Asus Eee PC 900.