The 120gb PS3 is just a rumour mate, at this time sony hasn't officially confirmed this model, but they're not denying it, the 160gb PS3 is also rumoured and it is in similar speculation.
If you want a 120gb PS3 then get a cheap ordinary PS3, replace the hard drive and get a similar laptop sata aerial harddrive which is about 2.5 inches. There are many tutorials on youtube about manually updating the harddrive of a PS3.
The 120GB PS3 sounds like a strong console.
If yer very patient, then wait and see if sony does release something like that. They always ALWAYS lavish the later consoles with some hot kit. However they will change features they feel aren't necessary in the later PS3's e.g Flash card readers, Backwards Compatibility etc. - like the 40gb.
If you can't wait then get a cheap PS3 and update the harddrive manually!
I hope the 120GB PS3 does come it'll give us more choice instead of that crappy 40GB version. If it doesn't than don't be suprised cuz thats sony for yer.
The best deal I reckon you can get for a PS3 is in North America on June 12th, a special 80gb bundle is coming out with MSG4, Dualshock 3 (with sixaxis) at a price of $499/$599.
If you live in Europe like me (UK) you only get the 40gb T-T
Hope that helps!