Jobs in an interview with David Pogue after the iTunes/iPod event on the 9th of September:
“Originally, we weren’t exactly sure how to market the Touch. Was it an iPhone without the phone? Was it a pocket computer? What happened was, what customers told us was, they started to see it as a game machine,” he said. “We started to market it that way, and it just took off. And now what we really see is it’s the lowest-cost way to the App Store, and that’s the big draw. So what we were focused on is just reducing the price to $199. We don’t need to add new stuff. We need to get the price down where everyone can afford it.”
The Apple fanboy community has been disappointed after strong rumors about the iPod Touch being given a camera turned out to be not true. So it looks like Apple, for now, wants to position the iPod Touch as a low-cost high-capability handheld gaming device. If so, it’s already the best in its class.