The iPhone has more features and its also more expensive. If you only want to listen to music and you don't need the camera, 3G then get the iPod touch.
Ipod Touch => Bigger size, (64GB max), no phone function
IPhone=> Max size 32 GB, phone function
Actually I would suggest iPhone as it includes iPod function but on the costing, iPod would be preferred if you just need a stylish mp3 player + portable gaming system