Obviously. I'm not terribly convinced that they're dropping it entirely, though. It'd certainly be nice to decrease the model confusion ("color" excluded--that's not confusing) and would certaily be cheaper and easier to distribute, but they've spun through so many models in so many markets so far...It is... but at the same time I was just reminding on the range of execution across SKUs. Obviously I think the default mindset if someone is even in this thread is to realize Johnny Awesome's comment was correct as it applies to PS3's going forward. The provision for full SW B/C notwithstanding.
The SIXSHOCK (or whatever they want to call it) is on its' way, and they may want to position that as a "deluxe" option. As they're still looking to roll out PlayTV and may be looking to that in future markets, they'd really need more than 80GB anyway. Plus, I'm sure they wouldn't mind outspeccing the Elite, to boot. (Damn those hard drive marketing numbers!) Upgrading to a 160GB is reasonably trivial (the hop to 250GB is a lot bigger), so they may simply be wanting to have a high-end model that actually IS high-end.
Quite possibly we'd see the 40GB alone for a while, to reduce the price expectations in people's minds and to give them a sales and perception boost leading up to their heavy-hitting 2008 titles, but when it's time I wouldn't be surprised to see them bust out with an eggregiously high-spec model again, which could certainly still have backwards compatibility. (It would boost sales of the high-end model, to be sure, and the silicon costs would be offset by the premium of the hardware.)