iPod touch compared to iPhone 4 as a development platform (iOS 4.1)

The differences are only substantial if your app would otherwise make use of them:

Compared to the iPhone 4, the new iPod Touch:

• has less RAM, 256MB vs 512MB,
• has a lower-quality rear camera,
• doesn't have a GPS unit,
• has a lower-quality retina display,
• doesn't have a vibration unit,
• and obviously doesn't have a phone radio unit.

Since most apps don't use the camera or the GPS, that's probably not a big deal. The retina display difference is also pretty minor (from what I've read). The difference most likely to give you grief is the amount of RAM, especially if you are making a game, but since you're talking about developing on the iPod Touch and not the iPhone 4, you're probably safe, since what works with less RAM should work when there's more RAM available.

Typically the difference is the phone has more features. GPS, phone, and compass IIRC. If you plan on making an app that is both for the Touch and Phone, then there wouldn't be a difference. If you plan on taking advantage of the phone, go for the phone.