According to a Nikkei report (found via Edmunds) Toyota will sell the current generation Prius alongside the next generation Prius due out this fall:
Japan's Nikkei business paper claims Toyota plans both to keep the outgoing Prius on sale, and to lower the price as a way of firing a shot across the bow of the hot new Honda Insight.
Sounds very unlikely to me, but it would explain the news story from the other day on how Toyota was going to lower the price of the Prius as a way to counteract the new Insights pricetag.
Selling both Prius at the same time seems like a recipe for disaster, but it would allow them to sell a stripped down version of the second generation Prius as a low cost version of the high end next generation Prius.
I'd rather see Toyota lower the cost on the next generation Prius. Maybe they could cut out the luxury items, reduce the weight, and then you could see even higher fuel economy gains on a cheaper version. Wouldn't that be nice.