From looking at the pictures of the innards I think they've used every available bit of space for the battery. As a result the motherboard is tiny. ISTR someone (maybe Hugo) saying that reason why the iPod touch always had twice the capacity was because it had space for 2 NAND chips as it lacked the all the phone related innards whereas the iPhone only had space for 1 NAND chip. Maybe the affordable chips aren't dense enough yet.

For me, extra battery life is probably going to be more important than storage space. While 32GB isn't cavernous it's going to be just enough since I still have a couple of GB left on my 32GB touch.