Well, I didn't mean to offend -- rather, just offer a strongly biased view of the rumor...
I apologize for calling "you" crazy, but "you" was used in a general sense and not specifically targeted toward anyone. Still, I realize it may have been offensive and I apologize.
Still -- I just don't see it. You specifically said that Apple is pushing "Desktop Movies." While a transportation medium is required to bring your desktop movies wherever you go, I believe that's what DVDs are for. Apple advertised to those home-movie makers in one of their commercials and touted the power of iDVD and burning your own DVDs at home to share with loved ones (remember the beach-marriage DVD commercial, where the Dad asks at the end, "Who is Julie?!"). I think this is the edge they're pushing, not toting around 6 hours of homemade movies on your iPod.
I know a lot of people here say that they'd run out and buy a video iPod without hesitation -- I'd think heavily about it, too, if it is truly in the works. But I don't think that a video iPod would have the same uses for video as the iPod has now for music. The iPod, in its current state, can be used ANYwhere. You transfer the music at home, and bring it everywhere, and you can listen to it anywhere. A video iPod, on the other hand, must be used somewhere with a TV. You can't view the movie on-the-go, and, even if you could, I seriously doubt many people would use it for that. It would be like trying to show family photos to people on the camera's tiny LCD -- cool at first, but you couldn't show more than a handful of photos before people would be like, "Wow, cool, but it's small and it's hard for everyone to gather 'round." What good would a portable video player be if you had to be somewhere with a TV to adequately show the movie?
This is what Apple thought of and answered with the iPod -- other MP3 players were either too bulky to carry around, or too skimpy on storage. They made a small, high capacity device with long battery life so you could listen anywhere --
anywhere being the key word.
I just don't see the usefulness of a video iPod. Very cool concept, but with the proliferation of cheap DVD-R media, it's easier to burn a DVD and bring it wherever you go. Some may say, "Hey, why not just burn a CD then, instead of the iPod?" Well, the iPod has roughly 50 times the capacity of a CD (40GB model). The rumored 60GB "video iPod" would only have roughly 10 - 15 times the capacity of a DVD-R. It doesn't make sense cost-wise to me.
At any rate, I would love to be proven wrong. The video iPod would be a Microsoft media center killer, but I think that the Microsoft media center will flop on its own, so we won't need a video iPod with which to kill it. Not now. Maybe in a few more years.
While I don't doubt that a color iPod would be cool and useful (and a possibility in the near future), I just don't see it being used to tote around video.