I think the big problem with the iPod touch is that it is from another era in technology. Back whenever it was popular, smartphones were not nearly as common, let alone ones like the iPhone. So the iPod touch served as a way to get into the iPhone OS ecosystem without needing to buy an expensive phone and get locked into a 2-year contract. Most people back then had a regular old cell phone, and used the iPod touch for all their media. However this is not the case anymore, as now most people have smartphones in addition to the fact that smartphones are much cheaper, and the contracts are more open due to it not being an AT&T exclusive. In my opinion, the only way the iPod touch would work again would be to make it extremely cheap, and perhaps multiple screen sizes. If it is cheap and has the option of a big screen it would make for a great portable media device. Another thing would be storage size. If they release another touch, it should have a 256 or 512GB model at the high end IMO.
I have always been a fan of the iPod touch, having owned every generation except the 6th. I still use a 2nd gen. with iPhone OS 3.1.3 for most of my portable music. My dream iPod is actually the 64GB 3rd gen touch running iPhone OS 3. Maybe someday... It's too bad that the touch is in the state it's in, I miss the era of consumer electronics. I don't see them updating it, but if they do they'll have to do quite a lot to make it sell well.