The 2G was a 'bust'? Really? Becuase from where I'm sitting Apple took the first gen product and made a ton of small changes that added up to a massive improvement. Double the capacity across the board, faster processor (the difference between the first and second gen touch is silly), MUCH nicer case, external volume controls - might all be little things but they also all add up.
The simple fact is this - Apple aren't going to introduce anything radical becuase they don't need to. The radical product was the original iPhone and iPod Touch and no-one's caught up yet. Thus Apple can get away with an evolutionary approach to their product line. As someone said above, we already know the most likely additions thanks to rumours - 64Gb, Camera, Faster processor and GPU - and that'll be more than enough to keep the Touch in the lead.
Seriously, why do people seem to want brand new and totally redesigned products every single year? The only time I can think of Apple going radically different in its iPod line was the 2nd, 3rd and 4th Gen Nano's and then only because the 3rd gen didn't sell well. I'd much rather they introduced a raft of smaller changes each year, refined the experience and worked on reliability and quality control above all else.