  We present new results based on RXTE observations of SAX J1808.4-3658. The
X-ray spectrum can be fitted by a two-component model. We interpret the soft
component as blackbody emission from a heated spot on the neutron star, and the
hard component as coming from Comptonization in plasma heated by the accretion
shock as the material collimated by the magnetic field impacts onto the neutron
star surface. The hotspot is probably the source of seed photons for
Comptonization. The hard component illuminates the disc, giving rise to a
reflected spectrum. The inferred evolution of the inner radius is not
consistent with the magnetic field truncating the disc. Instead it seems more
likely that the inner disc radius is set by some much longer time-scale
process, most probably connected to the overall evolution of the accretion
disc. This disc truncation mechanism would then have to be generic in all low
mass accretion rate flows both in disc accreting neutron stars and black hole
systems. The phase resolved spectra show clearly that the blackbody and hard
Comptonized spectra pulse independently. This obviously gives an energy
dependent phase lag. Full general relativistic effects are not required to
explain this. We do not detect Compton reflection from the neutron star
surface, though we predict that it should be present in the X-ray spectrum.
This would give an unambiguous observational measure of M/R if there is any
iron on the neutron star surface which is not completely ionized.
