Although I have found it's usually not a good idea to bet against CR Guy's sources, I'm having a hard time wrapping my head around the "entry-level DSLR" concept.
But, looking at it from Canon's perspective (not from the many wish-list comments I've read) I can see it under these circumstances:
Manufacturing three full-frame sensors is inefficient and ties up fabrication resources that can be better used for other purposes. So, instead of continuing to make the 5DII sensor, maybe it makes sense to switch to the 5DIII sensor (Assuming production costs of the new sensor are not much different than those of the older sensor)
Canon does like to re-use its sensors, as evidenced by the APS-C line, so having one sensor in at least two full-frame bodies makes some sense.
Same with the DIGIC chip. Probably cheaper to just use the DIGIC V, instead of keeping an old chip alive.
Apparently, again judging by the APS-C lineup, the incremental cost of slightly different models is not significant, so perhaps Canon would like to stretch its full frame development costs over more bodies.
Canon doesn't seem to be concerned about cannibalization of sales from one body to another (Again, note the clustering of features with the APS-C lineup) so they may not be concerned that a less expensive full frame will cut into 5DIII territory (They don't seem to be concerned that the 5DIII will hurt the 1Dx.)
The question, I think, is autofocus. Do they recycle the original 5D autofocus one more time? Or, do they spend the money on a new autofocus that is improved from the 5DII but not up to 5DIII standards? I'm guessing the latter, just because they probably don't think they can get away with using the same old autofocus one more time. But, that does create new costs.
Then, it's just a matter of picking and choosing which features to leave off and which ones to keep. Probably a mixture based on the incremental costs/savings from each feature. One thing they definitely will have is video capability. Anyone who thinks we will ever see a stills-only camera again is crazy. The incremental costs of video are small, but the risk of lost sales by leaving it out are huge.
So, maybe a rebranded 5DII with a 5DIII sensor and processor, possibly with a different autofocus or possibly with the same 5DII autofocus.
Price: I would say that without a new autofocus they might bring it in for $2,200. With a new autofocus, maybe closer to $2,500. I think an under $2,000 full framer is very, very unlikely.
Will it replace the 7D? Not in a million years. This obsession that full-frame fanboys have with APS-C is just ridiculous. APS-C fills a much-needed niche that has only gotten more significant with the killing off of the APS-H sensor.
Perhaps in five years the technology will have advanced sufficiently to offer an all-in-one DSLR that can shoot both formats, but it isn't there yet.
There will definitely be a 7DII and there may even be a 7DX (Enthusiast version with add on grip/Professional sports and wildlife version with one-piece integrated body and grip).