Assuming that the form factor is the same as the iPhone, might Apple be leveraging the case and LCD of the iPhone in the "iPod Touch"?
That would offer a few benefits:
- Keeps cost lower since you use the same case and screen - just the electronics are different.
- Allows folks making 480x320 content for the iPhone to run the same content unmodified on the iPod Touch.
- Encourages iPhone users to buy the iPod Touch because it looks and works like their iPhones.
- Encourages iPod Touch users to buy iPhones (down the road) because it looks and works like their iPod Touches.
I am guessing that the iPod Touch system board will be much smaller then the iPhone's and that a 1.8" HDD will fit inside.
Apple may not wish to release a 16GB or 32GB iPod Touch because that would put it over the iPhone (Apple already has large capacity HDD iPods, so that wouldn't be an issue).
As an iPhone owner, I'd buy an iPod that was identical in look and feel to my iPhone because I'd like to carry more stuff.