That's just silly. It's supposed to prove that catering to only the portion of the potential buyers with small collections or the time and patience to resync constantly and not mind not having something you might on a whim wish you could listen to is a horrible business decision.
The Touch has the amount of storage it has because they could not fit more storage in there. That is the reason. And do you consider anything under 16GB as being "small library"? Hell, I have 1000 songs and it's only around 5GB! 16GB would be over 3000 songs! I don't think I have a "small" collection, far far from it. I think my collection is quite typical if not slightly bigger than average. No, people with 20+GB music-libraries are NOT the majority.
If Apple is now under the policy of saying there are better media players out there for great numbers of people instead of saying they have the best ones through and through, they must have fired their marketing people who built the iPod arm of the company to be their most profitable one and hired instead people with your mindset.
Touch with an HD would NOT be "best mediaplayer through and through". There would be competing players out there that have better battery-life and smaller size. Like it or not, creating a mediaplayer that would be superior to everything else in all areas is next to impossible. Yes, there are players out there with more storage than Touch has. But they are bigger and clumsier. Yes, there are players out there that are smaller than the Touch is, but they have less storage and smaller screens. It's all about balancing things out and making design-decision. Simply saying "this will be the best in every metric!" is not realistic way of designing a product.
I seriously can't understand this mentality. They improved all their iPods by a large margin. They also introduced a brand-new line of iPods that does not replace any iPod before it. Rather, it coexists alongside them. And when that new iPod does not beat the other iPods in every single area, it somehow means that the new iPod sucks, that Apple sucks and how Apple is doomed? It boggles the mind, really. Apple has had separate product-lines for different people for a long time, and now that they improve their existing products, and introduce additional product-line, people whine? If you don't like the Touch, get the Classic. If you already own 5G iPod, Classic is a no-brainer if you insist on getting a new iPod: it's better than your old iPod in every single way.
You can be damn sure that Apple feels that they have the best mediaplayers in the business. But the thing is that they do not feel that they have one single mediaplayer that is superior to their other mediaplayers. And that's how it has always been. When I bought my Mini over two years ago, I could have bought the full-sized iPod instead. I didn't because I felt that the Mini is better FOR ME. Th full-sized iPod was and is not the be-all end all iPod that is superior to all other devices. If it were, they would have never released the Mini. Same thing here: some people will prefer the Classic, and some will prefer the Touch. Neither of them is the definite iPod that is superior to everything else. It all boils down to your priorities and preferences.
If you compare the Nano and Classic with the Touch, you would see that they are very different indeed. Touch is not your typical mediaplayer of the old, it's something new, with new usage-paradigm. Hell, if they had called the Touch "Newton", no-one would be complaining.
No wonder the stock is tanking ever since the announcement.
Apple stock ALWAYS tanks after announcements.