It depends on where you are. In Japan, the iPhone is carried by Softbank, and requires a 2 year contract. At any time during the coverage period, if the iPhone is lost, they'll charge your normal rate PLUS an additional 10K yen a month until the end of the contract. Alternately one can buy a new iPhone for 80K yen (it may have been 60K now, I can't recall offhand). Anyway, the contract seemed to require that I punch myself in the dick if I screw up, so I'd rather have an iPod Touch, which doesn't require it be repurchased or have punishment fees if I misplace it.
As for why I prefer it to my previous iPod 5G, it was 60GB and my Touch is 64, so no loss in volume -- and I am either at home or work, both of which offer wifi access.