After Google's announcement last week of their upcoming Google TV service, many speculated whether Apple would respond by refreshing its neglected Apple TV. Though Steve Jobs called the product a "hobby" at its launch, the rumor mill has begun to churn as reports point to an overhauled Apple TV with cloud storage and an attractive $99 price tag. According to gadget blog Engadget, a "a source very close to Apple" has confirmed speculation that a simplified version of the set-top box closely resembling the internals of the upcoming fourth generation iPhone is currently in development.

The device has apparently been described as "an iPhone without a screen," says Engadget's Joshua Topolsky. The CPU (Apple's A4 chip), storage (estimated at 16 GB) and OS will mirror those found on an iPhone, but this new device will reportedly also include support for full 1080p HD video. Though storage is limited, users will be able to access other local storage devices (supposedly local systems and networked storage devices) via WiFi, as well as cloud storage.

With the current Apple TV selling at a hefty $229 with 160 GB of storage, this new product could be a significant pivot for Apple in the set-top box realm. The transition from local to cloud-based storage may have something to do with recent rumors that Apple's MobileMe service may soon be provided free to all users - a possible use for the new data farm the company is building in North Carolina.

The reported $99 price seems logical because the majority of the cost of the Apple TV goes toward 160 GB of storage. Additionally, by designing it to mimic the iPhone's specs, Apple can streamline the production of the product and remove the most expensive part of the phone - the screen. Topolsky says no mention was made of whether apps would be supported on the device, but he suggests that scaling up iPhone and iPad apps to a TV wouldn't look particularly attractive (not to mention the lack of a touch interface).

I wouldn't be surprised to see some integration with the upcoming iPhone OS release that would allow users to control and browse from content on their phones or iPads and watch it on their TVs. Jobs has been adamant about how "couch friendly" the iPad is, so it only makes sense that a refreshed Apple TV would interface with the company's existing handheld devices.

If the speculation is correct, Apple and Google are poised for a Web TV showdown - a competition between to fierce competitors that could lead to some great feature innovations for users. While this is all based on rumor and some reading of the tea leaves, many have speculated that Apple "leaks" information to the press intentionally to generate buzz or divert attention from other products. The timing of this information - a week following the Google TV announcement, and at the midpoint between iPad and assumed iPhone launches - seems a bit convenient for Apple, but whether that lends credibility to the reports is yet to be seen.

Through all of this, one thing is certain: it would be unwise to buy and iPhone or Apple TV any time soon.