According to this story at RegHardware, Dell is preparing to go head to head with Asus and HP by releasing an Ultra Low-Cost PC in the June timeframe, which raises the possibility of Intel Atom chipset. Other specs are unknown

RegHardware's source, an executive at Compal, which is Dell's manufacturing partner in Taiwan, says Compal is aiming to produce upwards of 300,000 of these low cost machines per month for Dell.

I asked Dell for a comment on this story, and as expected, they said they couldn't. At least they didn't deny it or say it was totally out of left field.

Treat this with a grain of rumor salt until we actually see some specs or a product. Thanks for the link, Gavin.

UPDATE: Apparently, Michael Dell is confirming this report via an article in Mercury News, saying, "We will introduce a similar laptop." 

"We do see opportunities for very interesting products that are smaller and lighter and address the more mobile users in a very cost-effective way," he said, adding the laptops would "fit into the category" of targeting a market for children.

and

"Stay tuned," Dell said. "We will have some interesting products coming in that space over the next two quarters."