Advantages of the iPhone 4 over the iPod Touch 4 (besides phone functions):

• IPS screen vs. TFT screen - This will make the iPhone 4's screen much more vibrant and color accurate from any angle except straight on.
• GPS - The iPod Touch will still work with location-aware applications, but the accuracy, location update speed and location availability are severely limited in comparison.
• Compass - Applications that require the iPhone's compass will not work with the iPod Touch, and applications that have an added benefit from the compass will not have that benefit with the iPod Touch. Example: Star Walk
• Rear- facing Still Camera - The iPhone 4 has a good 5MP rear-facing camera with LED flash and the iPod Touch has an 0.7MP rear-facing camera with no flash.
• Camera Flash - Aside from being for use when taking photos or video, the iPhone's camera flash is used for certain apps like flashlight apps. Although arguably useless, these apps obviously will not work with the iPod Touch.
• HDR - The HDR photography function only works with the iPhone's higher res camera and is not available on the iPod Touch.
• Louder speaker - Although the built-in speaker of the new iPod Touch is reported to be louder than the previous model, the iPhone's speaker is still quite a bit louder.
• Glass back - The glass back of the iPhone 4 is much more scratch resistant than the stainless steel back of the iPod Touch.
• Mute button - The iPod Touch 4 has no mute/screen orientation lock button.
• Proximity sensor - The iPod Touch has no proximity sensor. This shouldn't be needed for other applications besides making phone calls, but theoretically, it could be used in other ways, though Apple has not authorized such use.
• Oleophobic coating - The iPod Touch has no oil-resistant coating on the glass. Keep a microfiber wipe handy.
• Case and accessory options - A far wider variety of cases and accessories is offered for the iPhone 4, even more so than the small difference in units sold would have one expect.
• Find my iPhone - The Find My iPhone service of Mobile Me is only available for the iPhone. If you lose your iPhone, you still have this slight added chance of recovery. If you lose your iPod Touch, you're pretty much SOL.
• The unknown factor - Strangely, there are some very few apps that work for the iPhone and don't work for the iPod Touch, with no explanation whatsoever as to why. Of course no major apps would have this problem, as developers want apps to work on as many devices as possible.

Advantages of the iPod Touch 4 over the iPhone 4:

• Smaller - The iPod Touch 4 is much thinner than even the already thin iPhone 4. It is also much lighter. The screen size is the same.
• No contract - The iPod Touch will not cost you any additional monthly cell or data fees, locked to a single carrier (in the US). If you want cellular data, you have a much wider choice of providers who offer Mi-Fi like devices and connectivity for a lower price than iPhone data plans.
• No interruptions - Games, browsing and productivity apps will not be interrupted by a phone call if you're using an iPod Touch.
• Much cheaper - The TCO of the iPod Touch, even when comparing subsidised cost and the difference between cellular plans, can be hundreds less than an iPhone.
• Higher capacity - The iPod Touch comes in a 64GB capacity model for half the price of the 32GB iPhone 4. There is no 64GB iPhone 4 offered.

Ambiguous differences between the iPhone 4 and the iPod Touch 4:

• Battery life - The iPhone has a much larger battery, which should mean more battery life. However, the cellular hardware negates this advantage. If you're using your iPhone as a phone, you will have lower time between recharges than the iPod Touch, depending on your usage habits.
• RAM - The iPhone has 512MB of RAM and the iPod Touch only has 256MB. Most apps wont show any difference, and the iPod Touch has lower general RAM requirements due to lack of the constantly running mobile phone elements of the OS. Startup time may also be longer on the iPhone 4 due to the increased amount of RAM. However, theoretically, apps could require the higher amount of RAM to run (though I'm not aware of any) and performance could differ when running lots of multitasking capable apps concurrently.
• Rear Camera Video Performance - Both devices produce the same 720p video files. However, the hardware is different. Some people actually prefer video taken with the iPod Touch, though theoretically, the video from the iPhone should be better.
• Microphone - The microphone hardware is different between the iPhone and the iPod Touch. However, in real-world use, such as for Facetime chatting, most people didn't notice much difference in performance.

No difference between the iPhone 4 and the iPod Touch 4:

• CPU - All observation shows that other than with regard to RAM, the CPU is the same A4 processor, at the same speed.
• Front-facing camera - The front-facing video and still camera on both devices is the same.
• Facetime - Facetime video chats work equally well between both devices.
• Screen size and resolution - The screen is the same size and has the same incredible 960x640 pixel resolution.
• Other screen details - Other than the IPS/LCD difference, the screen of the iPod Touch has the same LED backlighting and glass welding process that combine to make the iPhone 4 so amazing.