I have the iPhone 3G, not the touch, but they're pretty similar in user experience with this head unit so I'll share what I know.
It doesn't seem to do sound check... as it's running through the dock connector but not via the iPod app on the touch/iPhone (which is disabled when connected), I assume it's pretty much reading the files directly or something to that effect, and as I recall sound checking is external to the MP3/AAC file formats.
I've noticed as well a little bit of adjustment is required! Frankly I'm just glad my iPhone works at all... had to use the cable out of the box because for some reason the white USB cable causes a "USB DEVICE ERROR" and the KCE-422i full speed cable won't charge and displays no album art AND you have to unlock the phone (don't know if the Touch has the code-lock feature?) before it would play. If anyone is using that cable and it won't play at all, try unlocking it first and firing up the iPod app prior to connection.
So using the USB cable, I've also experienced the silent-playback issue when the head unit is turned off and on again with the phone plugged in. Chances are you've turned your car off the night before with the touch/whatever still plugged in and playing, THAT is where it seems to go wrong in my experience, rather than in the morning! You do usually need to power-cycle the phone when it happens, so it figures the problem would be there in the morning. Solution is to just either rip out the iphone/touch first, or change the source on the head unit before turning the car/head unit off. Both seem to stop that happening.
Sometimes just changing the source made it work again for me, as well, but once I did have to power the iphone off/on again.