It also depends on the carrier you are on.An iPod Touch is a decent portable media player, internet, and gaming device that has access to (most of) the same apps as an iPhone, for a fraction of a price and no mobile service plan to worry about. I don't see why it's surprising that people might still be interested in it. Think teenagers, for example, who can't afford or their parents simply don't want to get them a smartphone.
Last year, I switched from AT&T to T-Mobile mostly because I have 2 children that will be getting phones in the near future. (The coverage isn't as good, but I had to jump to take advantage of corporate discount that is about to phased out for new customers.)
Anyway, with T-Mobile, I don't share data with kids and there's no overage charge for going over the limit (data is automatically throttled to 128 Kbps). And each line after myself and spouse is only $10/month.
While iPhone is more expensive than iPod touch, giving kids our older iPhones cost about the same or less than new iPod touch AND basic phone.