I'm convinced that Apple is killing the iPod classic, and for good reason. There's not much you can do with it. A hard drive is just too fragile to build in accelerometers and other "cool features." Also, Apple is out to make as much money as possible. Sales show that the nano is far more popular than the classic ever was, so of course Apple is going to focus all their efforts on the nano. With flash memory increasing in capacity yet dropping in price, it won't be long before we see the nano and touch approaching capacity matching that of the classic. I predict by next year there will be a 32 GB nano and a 64 GB touch, and by 2010 we will have the 128 GB touch. And once that happens, I imagine the classic will be discontinued in favor of the nano.
Also, one of the biggest reasons that Apple discontinued the 160 GB classic is simply because few people needed it. Yes, it did make a nice hard drive, but for the same price, I could have gotten a 500 GB+ portable hard drive. The fact is, a select few individuals really have music libraries of 160 GB+. Therefore, only a select few would need such a high capacity iPod classic, and as noted by Jobs in the keynote, this is why most everyone went for the 80 GB model.