I think there is a lot of hysteria surrounding the Nexus One. Sure, it is a good phone and a great alternative to the iPhone. However, Apple has no reason to rush out the latest iPhone because of it. I personally think an iPhone 4G in the summer will be more than sufficient.
The hardware could obviously do with improving like the processor, camera etc. although I think the major updates with happen with iPhone OS. The OS is now starting to look dated. One feature of Android I really like is the notifications bar at the top, stuff like that would be great. It also seems to be getting really cluttered now with just pages and pages of apps. Surely, the OS needs an upgrade now as more stuff is happening than when the iPhone was first released.
I also think Apple needs to do a MobileMe Lite version. One with say just email, contacts and calendar push sync minus the galleries, web storage, etc. Google offers all this for free with Gmail, Gcal, and contacts. I could quite easily do without the web pages, galleries, iDisk... I never use them and can get them from elsewhere and probably cost the most for Apple to provide because they use the most bandwidth.