Steve Jobs says the iPhone is the best iPod ever, but he's lying. Jobs wants to push the iPhone because he gets a cut from at&t, understandable. I, however, don't want to do business with at&t-- and that is reason #1 to opt for the iPod Touch.
The Touch has the same awesome interface as the iPhone and twice the memory for the price. The draws are there, and so are the drawbacks. It doesn't replace a phone, it doesn't have internal speakers, and you can't use internet anywhere that doesn't connect to a wifi network... I like my current phone (first time in my life I can say that), I think playing sounds from you personal media device in public is rude, and I almost never need the internet unless I am around wifi (besides the at&t data network is so slow I couldn't bear using it anyway).
If you need a new phone and are already with at&t, get the iPhone if you are in the market for one. But, remember the phone is only as good as the network. I'm happy with my iPod Touch.
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