It doesn't take much scouring through Apple's marketing materials to understand who the new iPod Touch is for, the answer hits you in the face, it's for kids. It's a starter iPhone.
The crazy thing is that as Apple and Google's cloud services are getting more sand-boxed, it's becoming more and more likely that these first devices could determine what operating system a kid sticks with once they have more of a say in what smartphone they're getting. Where are their photos stored? What can they play the games they've already bought? At a certain point, will higher upfront costs for these entry-level devices hamper iOS growth further down the road?