If the Touch HD is the closest Windows Mobile competition to the iPhone in terms of capabilities, size, then the rumored iPhone Nano will be competing with the Touch Diamond in terms of dimension and features.

According to Brighthand, Mac rumor sites have found a silicon skin case for the diminutive iPhone Nano from a Chinese maker, stirring more speculation of the device’s launch. The device maker had gained reputation for pre-releasing photos of the iPhone 3G’s case and a recent iPod case ahead of Apple’s announcement. The smaller iPhone will be similar to the iPhone 3G, but may eschew 3G and come with a smaller screen.

The smaller screen size of the rumored iPhone Nano will more closely compete with smaller touchscreen smartphones like the Touch Diamond and the Touch Pro.

On a different, but similar note, the Touch Diamond’s bigger brother–the Touch HD–had beaten the iPhone and other competitors in a test done by Channel 5 The Gadget Show, according to WMPowerUser. With a smaller screen and more navigation control, the Touch Diamond should be able to beat out the iPhone Nano.

To view the video of the test conducted by Channel 5, you can visit Channel 5.