Apple HAS to drop the 5GB model if it's going to increase sales of the iPod... this is product-tree strategies 101. Apple apparently only has 15% marketshare on the MP3 players... this is hardly enough to keep a price squeeze on the public.
In regards to Apple's iPod product-tree, if they kept the 5GB (entry) model hanging around as-is, then too many competitors would be able to muscle in. Although iPod seems to be very popular, an analysis of WHY the iPod is popular would reveal the usual: early adopters snatching up a new toy. Well the party's over, and now as the market saturation begins, Apple has to count on more conservative pricing strategies and typical product-tree paradigms to keep the iPod generating sales.
When we see the demise of the 5GB depends upon how quickly Apple wants to introduce a new model into market and how much 5GB inventory is left... as Apple's new Dell-like approach to inventory is wait-2-build, it's possible this Xmas is the last year for the 5GB, and then the stock-out will begin. So prices will probably remain high (with perhaps a small reduction) through Xmas (peek purchasing, yeah!) and then any leftovers will go on sale to introduce the new models. (A typical pricing strategy is to really lowball the low-end when it's being phased out and super-inflate the high end, so the middle-units will become more attractive to potential buyers--basically the old "tease" or "bait and switch" approach)...
Well, that's what I say anyway. Business as usual for Apple.