All rumor and speculation. Personally, I doubt any such thing will happen, but the rumor has persisted regardless.
Right now Nintendo is applying a "three-pillar" strategy: GBA, DS, and GCN. However, many have been believing that the next Gameboy is in the works. Considering the PSP has PS2-quality graphics, many have been guessing that the next Gameboy will have GCN-quality graphics. That's how the rumor of a "portable Gamecube" came about.
All that may be very well possible. The part I don't agree with is the "replacing" the DS part. Supposedly, Nintendo is merely delaying the PSP with the DS until the next Gameboy arrives to take the market. I don't think this will happen because that will completely contradict everything Nintendo currently stands for. The DS is a new way to play games, a way to get non-gamers interested into the game market. It would be a hypocritical move on Nintendo's part if they were to replace that with a graphical successor to the GBA. That's why I doubt the next Gameboy will hit the market anytime soon. I'd give it another year or two before such a thing is even announced.