heh, apple has a serious problem on their hands. They release the iPhone, an amazing product with gorgeous features and UI, limited by two major factors: 1) Lack of 3G support, 2) Lack of space.
People start wondering, if the iPhone is the best iPod ever, why isn't there a stand alone iPod with the same touch technology, but with more space (due to lack of phone hardware)? So, they come up with the iPod Touch.
It's a nice product. The only problem is, we know what it's capable of. It should have everything the iPhone has (it is the exact same software!), except the phone features. They pretty much do that at the revealing, giving us calendar support, notes, internet browsing...etc.
Then the problem arises...this thing is the same damn product as the iPhone. It even looks exactly the same. Why the hell would anyone buy both of them? Can you imagine opening your bag and seeing an iPhone and an iPod touch? It would be ridiculous. You can't even tell them apart. What they essentially did was create a product that is directly competing with their own product. They realized this, and had to strip back the features of the iPod Touch. Of course, by this mix up, people are now aware what the Touch is capable of, and it's not only inviting hackers, but also portraying Apple as being too short sighted, something they usually are not.
Once Flash memory becomes cheaper, there won't be a need for an iPod touch. People that buy the touch are buying a product that is filling a niche for the time being before iPhone can expand. If you could buy a 100gig iPhone, or a 100gig iPod Touch...which would you buy? They do the EXACT same thing (in theory) other than make phone calls. Because of this MAJOR problem, Apple has to strip down the Touch, even though it's capable of more. I think its a major problem for Apple.
They should have the normal iPod line, and then the iPhone, nothing more. Don't make people activate the phone service if they don't want to. If they want a "touch" then buy an iPhone/PDA/whatever you use it for. If you want a normal iPod, buy the classic or lower models.
The Touch in theory is a cool product, but its going to cause way to many problems than its going to solve. To put it bluntly, Apple has really screwed up here. Unless it knows it is just buying time until they can discontinue the Touch, and have the iPhone be free from ATT activation requirements ans serve the purpose as both a Touch and an iPhone.