According to Arstechnica's ever-reliable "mole," Sony is indeed phasing out the 80GB PlayStation 3 model -- but is sticking to their two-model approach with a new model that is said to include additional hard drive space, as well as the upcoming Dual Shock 3 controller, which is scheduled for a Spring 2008 release.
Reportedly, the upgraded model will still retail at the price point of $499, which makes sense, because recently Sony has cut costs on PS3 production. No word on if the rumored model will include backwards compatibility with PS2 games.
Mole: 80GB PS3 dead, 120-160GB with Dual Shock 3 incoming [Arstechnica]