I buy this rumor. The system seems to sell more as a multi-media device than game device anyway, so taking an iPod-like route in terms of remodels makes sense. If they give it the ability to load the games onto internal storage and only used the UMD to verify it's legit a-la the 360 then it'd probably get a boost in the western markets similar to Japan, as well. One of the biggest complaints against the PSP is the short battery life, and that would do wonders to rectify that problem. Also, it'd mean that a PSP2 may not be in the making.
You do not have the right to never be offended.