The new iOS update is rumored to be focused on "the cloud" and location-based services. Amazon's new cloud-based music locker service is certainly the harbinger of a new trend, and Apple us undoubtedly scrambling to release an iTunes-centric version of a similar service.
You can read more analysis of the iOS scuttlebutt at Edible Apple, who passed along another rumor from a German site that Apple is planning a special iOS/Mobile Me event in April.
Apple's MobileMe service hasn't been particularly popular, mostly because it's rather expensive compared to the various free services from Google and others that offer similar functionality. But there are some gems in there, and this discussion of iOS 5's possible focus on location-based services, such as tools enabling you to find your iOS-using friends, makes me think that Apple might be planning on re-branding its location services under the MobileMe name. Now that the iPhone is facing some stuff competition, Apple's going to have to compete on the strength of its software and the quality of its integrated suite of apps and services. Right now would be a good time to unleash MobileMe, take its most unique features, add some new ones (location), and make it free to all iOS users. That would raise the bar. One of Android's biggest advantages is suite of free Google services it draws from. Apple should follow suit.