It will be interesting to see the new release schedule from Apple with the iphone now in the mix. Will the iphone update in January (when it was announced), June (when it was released), or some other month entirely? While the ipod touch is in reality more like the iphone, they will probably want to release it with the new ipods. However, giving the iphone a two month head start on hardware features wouldn't be entirely unreasonable to try to gain iphone customers.
I think that the bigger questions relate to the hardware and software upgrades to the touch, and whether software upgrades are backward compatible.
Hardware: Obviously they'll have to upgrade hardware to sell future models. For the short run (i.e. next update), there seems to be a considerable chance of a 5.5g-like upgrade that doubles the memory (16/32gb) and hopefully increases battery life. That would most likely have to be done through components that use more power rather than a more powerful battery (or larger, unless they free up space elsewhere) as battery-technology isn't advancing at a doubling pace per year or two as are processors and memory.
Hopefully, though, we'll soon see (within one year) upgrades that are much like upgrading a computer with a faster processor, better screen (either more pixels or stretched to the entire body for true widescreen), better Wi-Fi module, better sound quality. Primarily, since there is no need for extras such as CD drives or many ports, increased processing speed (coupled with software) to allow for true full-internet capabilities (like flash) and more computer-esque programs like word (or world, if you like strategy games) processing.
Software: This is where the touch can really shine. Not only with third party apps (please???) but finding out how to make the interface of the ipod touch include more computer functionality (and PDA and cell phone). Software is the only thing holding the ipod touch back from doing nearly everything that any PDA can do (if you consider data networks to be the fair ground of the iphone) and a good deal of computer activity. Some things, like wireless synching, could be added relatively easily (one imagines).
No one's expecting to be playing Half Life 2 (or Halo, but that one's a given) or Starcraft 2 on the touch, and while it might be cool to try out World of Warcraft (etc.), people will want a true experience. The same goes for photo or video editing (although one could see a very basic editing program coupled with a way to import pictures directly. Wouldn't it be great to import, edit, and sort our your pictures on the plane home so you have a slideshow made before your trip even has ended and you don't have to lug a laptop around?) or other processes that make heavy use of a large screen, a mouse, or a keyboard.
But, one could always add those hardware devices. A small foldable keyboard (imagine the new Apple keyboard but more portable, not great but workable) would make for a great on-the-go document editor, not to mention email-writer or forum poster (I could be using my touch for this long post instead of my laptop). A mouse might not be needed unless one was doing precision work (in which case, a computer screen would be preferable), but being able to plug in your ipod into a TV and pull out a keyboard would make a truly portable PC, as well as a wonderful slideshow presentation (think, they could sell a device that you plugged in and wirelessly streamed the presentation, leaving the ipod as a remote+.
The problem with software updates is that they won't generate money for Apple. One could see them sold (as has been suggested on this board) individually for a few dollars on iTunes, which they could probably get away with, but not including them on the old ipod touches would create an outcry from first-generation owners who don't need a new one yet (it would be like iphone-gate and calendar-gate put together). While it's understandable how old standard ipods can't do coverflow because of hardware requirements, and perhaps they'll build future software so that some features such as internet-flash won't work without the new ipods processor, Software has to be used to entice people to the ipod touch, not to encourage upgrades from 1st generation touches.
Then, of course, there are curveballs. Perhaps they'll finally kill off the classic and make it touchscreen with a hard drive and a flash memory buffer. Maybe they'll open up the ipod to 3rd party developers, or maybe they'll fight them on the touch as they have on the iPhone. I wouldn't bet on any of these yet, but they could steer Apple's future decisions.
Bottom Line: The ipod Touch may well be the best music player ever (minus the storage size and stripped iphone functionality), but that's because Apple's made the best and by far smallest Ultra Ultra-Mobile-PC (UMPC). As a computer, the horizon is endless (companies have already built foldable screens) and hopefully Apple will use that.
P.S. It's also interesting to not that there isn't a whole lot more space for the ipod classic to go. Its got more storage space than most laptops, battery that can last for days, a nearly-perfect simple music browsing interface, and a nice screen. What can they do (wireless synching?, photo zooming, etc.) with the simple interface, and if they upgrade it, it becomes a touch (although Microsoft has found a middle-ground with the new Zune touchpad, but Zune's suck and one should either use a great-but-simple wheel interface or a full touch display.)
