Russell has officially joined the group of Apple-will-launch-my-favorite toy pundits. I would think that if they want to expand their reach into the consumer device space they would emulate the iPod's success in a more fundamental way - by creating whole new market segments, not by entering saturated ones.
Russell's base reasoning is reminiscent of the old Apple-will-launch-a-PDA rumors, i.e., that Apple has a chance of doing a much better job at something, and that they have the industry partnerships in place. And I will admit that Apple getting into the mobile phone space makes a little more sense than doing a PDA, since it can be perceived as a more trendy spoke in their "digital hub" - even more so if you start thinking of phones as media devices, as all the misguided "features-are-everything" folk keep doing.
But, despite having been thrown around a number of times (1, 2, 3), on the whole, the idea has no substance - even if Steve Jobs has previously denied going into mobile phones the appropriate amount of times. And some of the things Russell hints at (like the phone running a mini version of OS X) just don't make sense.
What does make a lot of sense is better iSync/iTunes integration, and a little corner of the iTunes Music Store dedicated to test the waters of the "full track ringtone" marketplace. Those are no-brainers.
Still, 18 months is a long time (conveniently long to increase the chances of the prediction being right...). I'm sure Apple will eventually come up with a new consumer device - and I think Ross Mayfield has the better guess.