Completely different products? Minus a screen size difference they are both identical. It's not like I'm comparing a boat to an airplane. This is apples to apples.
The screen size difference makes the devices in two different markets. For instance if I want to listen to music on the go I'm definitely not going to want to take a tablet with me. It's easier to pull out a 4" device from your pocket than it is to carry around a 7" tablet.
Tell you the truth the 7" tablet market seems like a even smaller niche than the iPod Touch. Home? the 9/10 inch tablet. Out and about? iPod Touch/iPhone. Biggest attraction of the 7 inch tablets is the price.
I think the 7" market came into play to drop the price of a tablet rather than really having a unique market. Don't get me wrong I'm sure there are thousands, perhaps millions that would look at a 7" tablet for on the go uses.
All that being said because of the 7 inch tablet market the iPod Touch should be cheaper, the capacity is a big cost factor and Apple isn't fooling anyone by acting like flash prices haven't come down in the last 3 years. At this point they should either drop the price or bump the capacity. $400 for 64GB is really ridiculous these days especially with the free fall of flash memory prices. At this point they should either a) add 128GB model at the same price point or b) drop the price of the 64GB model. I think the iPT should be $200 for 32GB, $300 for 64GB and $400 for 128GB but I'm not Apple and I suppose of you can continue to milk the cow with the same capacities year after year then I probably would do it too.
As for an update next year we might finally see the mythical 128GB model and some new colors but I don't see any internal updates since it seems Apple has changed their upgrading for the iPods to be every two years.