here's the deal...the Classic uses a small (physically) hard drive and so they can achieve much higher data storage with that type of hardwear. it is an older technology comparably and it offers a few good things but also comes with its drawbacks. yes it is much more storage, but it actually has moving parts and those magnetic disk spinning in there use a lot of power, take time to spin up when the device has been idle, and pose a chance of skipping and/or data corruption if you treat the iPod rough/expose it to magnetism, etc. in addition to that, a hard disk is fairly large for this realm of hardware (notice how the Classic is much deeper). the internal flash memory technology utilized in the iPhone and Touch models is sweet, but really in its infancy compared to the hard disk. it is physically smaller, allowing other circutry how other features to be included with these devices (i.e cellular circuitry, wide touchscreens). it has no moving parts, and so uses less power and is much more stable. the power issue is key, because the new features that are really good for marketing (see last parenthesis) and quite power hungry in and of themselves. the flash data storage is limited as of now, but this will improve drastically in the near future. in fact, much larger (64+ gb) flash chips are currently available but are very expensive to manufacter and would cause already high ipod prices to rise if they were utilized in the current models. an interesting note is that a lot of the industry predicts that at the rate new and larger flash chips are being produced, they will one day totally replace hard drives even in desktop applications due to their aforementioned advantages, once they catch up and can compare in a storage size sense. this will take years, but really not as many as you might think.
apple knows all of this. i'm sure they are already actively preparing new models of the iPhone and Touch versions with greater storage capabilities. apple releases these current models with the hope that the new features stir up enough excitement with their usual consumer base to sell a bunch of units now that will be replaced in the near future when the more refined and evolved versions of this technology become readily available and affordable.
personally the bottom line is that i won't be buying either a Touch or iPhone until they 'evolve' a little bit more. hey, maybe in a year or so bluetooth earbuds may have really caught on and had the kinks worked out (i can dream, can't i?). my advice is don't get caught in the craze after these new features. i would never but a new car in its first model year, because inevitable flaws surface that are treated by the next year. it's much the same...i hope this helped.
i do the best imitation of myself