Google has not ruled out Google Phone. There somewhere in Googleplex is a reference device made by HTC, code-named Dream (appropriate name, if you ask me). Forbes has the following details on the reference device:

It is thin, about 3 inches wide and 5 inches long, and features a touch-sensitive, rectangular screen. Unlike the iPhone, the screen is also time-sensitive: Hold down your finger longer, and the area you’re controlling expands. The bottom end of the handset, near the navigational controls, is slightly beveled so it nestles in the palm. The screen also swivels to one side, revealing a full keyboard beneath. (The screen display changes from a vertical portrait mode to a horizontal display when someone uses the keyboard.)

The Dream design makes the core functions–e-mail, text documents and YouTube–readily available by putting icons that open those applications along the top of the screen. In its guts, the phone runs a virtual machine so that applications, like the browser, can launch once during a session, then reside in the background. That way, if someone sends you, say, a YouTube video link, you can run it immediately, without restarting the browser. The browser also downloads large files in stages to cut the time it seems to take to bring them onto the phone.

And if things work correctly, HTC is ready to mass-produce the device by 2nd half of 2008. I just hope it is cheap.