That whirring sound...

...is Steve Jobs spinning somewhere at this, as reported by Abby Ohlheiser in Slate:

Apple is testing a version of the iPad with a smaller screen, say officials at some of the company's Asian suppliers. According to the Wall Street Journal, Apple has shown screen designs for an eight-inch iPad (compared with the 9.7-inch iPad 2) to suppliers, and is working with companies that include Taiwan's AU Optronics and LG Display of South Korea on producing test versions of the new product, which may or may not actually go into production.
The test might indicate a departure from Apple's approach to tablets under Steve Jobs: the smaller size would be below the minimum size the late Apple co-founder believed was necessary for "great tablet apps". But a smaller tablet could also be more competitive in an increasingly full marketplace.
Samsung and Amazon are doing well in sales of smaller-size tablet offerings, including Amazon's seven-inch Kindle Fire and Samsung's Galaxy Tab, which comes in three sizes, including a seven-inch. As the Journal notes, however, Apple would also need to price competitively in the smaller tablet market to make any dent in current sales; compared with the Kindle Fire at $199, the lowest price one can pay for an iPad from Apple is a relatively whopping $499.
Apple is expected to launch its next version of the iPad in early March. The iPad 3, which will support G4 networks on both AT&T and Verizon, is also supposed to have a higher-resolution screen than the current iPad 2, with a screen of similar size.

Rico says it's another hide-and-watch product release from Apple...