Anything larger than a 16 gigs Flash Drive would raised the ipod touch's price to sky-rocket and we don't want that do we? Flash technology is fairly expensive at this moment. It's not until cost decreases will these things make it into ipods... I still think HDD would have been sufficient. Just look how thin the ipod classic got.
apple never changes price points, the iphone was a freak of nature, and a new product, apple didnt really know what to do with it thats why they dropped the price