Learning that people like small iPods and making an even smaller iPod is not risky -- that's just common sense.
Touch-screen phones in almost the same configuration as the iPhone existed years before it's release. There was really nothing nuts about making improvements to that design. Even if there was no guarantee that the iPhone would be wildly successful, it was certainly not going to be a total failure.
I don't know, I think the new nano is too small. Apple did a good job with the UI-on-a-postage-stamp, but the thing is just physically too small to hold and use with one hand. If the body were a bit longer so you could hold it with your fingers and use your thumb to navigate, that would be better. IMHO.
Apple does make mistakes -- the buttonless shuffle was universally panned and now the new one has buttons again. If the new nano is too small, the next nano will be bigger. But, getting back to the original point, these product changes are purely evolutionary.
Touch-screen phones in almost the same configuration as the iPhone existed years before it's release. There was really nothing nuts about making improvements to that design. Even if there was no guarantee that the iPhone would be wildly successful, it was certainly not going to be a total failure.