There’s a “budget” smartphone category that has so far revolved around devices like the Palm Centro, BlackBerry Pearl, and a host of Windows Mobile devices like the Samsung Jack — basically scads of devices aimed below the fat wallets of enterprise.

Typically these devices are small to the point of being cramped, with tiny keyboards or work-arounds like T9 or SureType, and are low-margin for manufacturers — sold more to grab new users, bolster market share, and create brand awareness than to serve as mobile computers for the internet age.

Well, Apple has just shot a cannonball through the heart of that smartphone category — the iPhone 3G at $99.

At least that was our editor-in-chief, Dieter Bohn’s reaction when we spoke following the big WWDC 2009 Keynote. And I think he’s right. Here’s why:

Come next week on AT&T (and Rogers and other carriers that match the price point), for $99 you’ll be able to get a full-on 8GB iPhone 3G running iPhone 3.0 software.

That’s not an iPhone nano or mini, not a stripped down, poorly built, cramped, barely functional budget smartphone, mind you, that’s the same phone that until last Monday’s WWDC Keynote was arguably one of the most advanced mobile computers on the planet. It’s the lower storage version of the hardware that shipped over 10 million units and has 50,000 apps ready to run. Never mind Apple branding and a super-slick user experience.

For $99.

Whether or not the price point remains, or it lasts only as long as current supplies, this has to send Palm, RIM, HTC, and others into panic mode. Palm, for example, has show quarter after quarter losses on the Centro even in the budget category, and Apple will still be making margins on the iPhone 3G.

Will this put downward pricing pressure on next generation devices like the Centro-replacement, webOS-powered Palm Eos? Will it force RIM to offer BlackBerry Tour-like features at Pearl-sized prices? And even if they do, with multiple form-factors and networks at play, can they achieve the economies of scale and maintain realistic margins at that price point? For companies like Palm, whose financials are still shaky at best, these become critical questions.

Which brings us to the elephant in the budget smartphone room:

If Apple is selling the iPhone 3G at $99, what does that do to premium devices like the Palm Pre, BlackBerry Bold, HTC Touch Pro 2, etc.?

Certainly not everyone, but just as certainly some budget-conscious people who were considering a new premium smartphone might just decide to save themselves a hundred — or several hundred — dollars and get an iPhone 3G at $99 instead…

When Tim Cook said Apple wasn’t going to leave a price umbrella for the competition, did anyone really think he meant the (as of this writing still) current 2008 iPhone 3G would sell for $99 on contract?

Of course, exact pricing will vary by region/carrier and eligibility, contract-wise. Still, if a new customer can walk in AT&T, drop $99, and walk out with a still highly functional iPhone 3G with free upgrade to 3.0…

Hot.

Who knows how long it will last, so if that’s your magic number, go get it!

Before WWDC in June of 2008, when Apple announced the iPhone 3G, supplies of the original iPhone (now called 2G) began to dry up. Apple killed the iPhone 2G rather than allow two versions of the device to be on the market at the same time.

So why is every internet rumor and it’s quotable analyst predicting Apple will once again introduce a low-end $99 iPhone this spring/year/at Walmart? Why do they think Apple will bring back the iPhone 2G? (which is essential what a cheap, 4GB, EDGE, non-GPS iPhone would be). Sure, the still-ongoing economic problems are a concern to every consumer electronics maker. Granted, non-subsidized markets like India have been difficult for the premium iPhone to penetrate. Okay, Steve Jobs said they wouldn’t leave an umbrella beneath the iPhone for competition to try to exploit. FINE!

But here’s the thing: Since when has Apple done “cheap” anything? Aren’t these the same analysts that have been “predicting” an iPhone nano? An Apple Netbook? A bargain basement MacX mini-tower?

There are some markets Apple chooses not to participate in. And Apple doesn’t know how to make cheap products that aren’t crap.

Sure, maybe they’ll re-introduce the iPhone 2G. Maybe they’ll make a Netbook. Maybe Steve JOBS will appear on Dancing with Stars. Maybe I’ll look really stupid when all of the above happens this year. Maybe not.

My guess? If Apple introduces new hardware like they’re expected to this summer, maybe this time they’ll let the iPhone 3G hand around as an 8GB lower-end model. We’ll see if supplies start drying up around the May/June time frame.

Meanwhile, instead of breaking out my magic 8-ball again, I’m going to ask YOUR opinions. What do you think? Will Apple bring back the iPhone 2G? Will they go cheap?

(Thanks to Mike for sending in yet another analyst prediction, prompting this question).