Caker's "stay tuned" for cheaper linodes?
Sick jokes aside, that really is about what Amazon does, though it's probably a custom patch to Xen or something. Linode could also easily offer "1 CPU core, but with twice the contention". Though that doesn't fit on the marketing copy very well.
I suspect tat if they do offer smaller linodes, it would be a $10/mth option that include one 1GB of RAM and 1 CPU core. It's hard to offer half a CPU core.
It's possible. I have seen other hosts limit the Mhz of the core.