If people rememember the iPod Classic came out as 160Gb, then they cut the capacity back to 120GB, then they went back to 160GB. The reason why the Classic still sells well is because of capacity, as it has 1.8" hard disk inside it which is extremeley durable. Hell mine has dropped a couple of times and never missed a beat. I suppose Apple could put a touch screen in the classic with it existing hardware, this way people have the best of both. There has been no Firmware updates to the iPod Classic for over a year.
The iPhone 4 / iPod Touch all use DDR-RAM, not NAND which is used in SSD drives. The DDR is cheaper to produce and more common, unlike NAND used in SSD drives which is usually MLC (Multi Level Cell), rarely SLC (Single Level Cell). True the classic still uses a hard disk, but because these are so common and such high capacity the price of the HDD is very low, especially in the quantities Apple purchase from Hitachi etc. If Apple were to remove the HDD and replace it with a similar capacity 160GB SSD module, the price would make it more expensive than the top end iPod touch.
This is because NAND manufacturing is still pretty minimal and only a select few fabrication plants actually manufacture it - Samsung being the majority stakeholder, and due to this the price remains high. The simple idea of supply and demand. Currently between SSD / HDD the situation is the following - SSD very high speed lower capacity vs HDD slower speed larger capacity. Currently, its uneconomical to have the best of both worlds.
In the end Apple will either kill off the Classic or keep selling it till the Ipod Touch range and their capacities can be increased gradually to meet or exceed the 160GB Classic.