Okay, so they didn't announce it at the Tokyo Game Show, but that hasn't stopped the rumor. In fact, it seems more possible than ever: according to Product-Reviews.net, it seems Sony has already approached Taiwanese manufacturer FoxConn and requested they make a "lower-spec" PS3. If you weren't aware, FoxConn is the same company that produces the PS2.
However, and this has been a subject of much debate over the past few weeks, nobody is really sure what "lower-spec" actually means. Some have said this might include the loss of a USB port or that great backwards compatibility…which basically already disappeared in the new 80GB model. It doesn't feature that snazzy graphics synthesizer chip from the 60GB model that results in almost full backwards compatibility (it uses software emulation instead), so it's very likely we'll see this same approach in the 40GB model.
Many have expected the US model would retail at $399 and the UK model at £200, but again, nothing has been officially confirmed. It seems almost inevitable this mystery 40GB PS3 will arrive at some point, but we have no idea why Sony didn't want to announce it at TGS. Perhaps they're just waiting for a more strategic time, closer to the holidays…?