The reason that your Touch thinks it's a camera is because you have got pictures on the Touch that were taken as screenshots. You must have taken a screenshot, either using the Touch's screenshot facility or from within an Application. I have a few Apps that can do this, Artisan and Kaleidic are two - once I start, I can't stop!
So now the Touch has pictures in its "Camera Roll", so when you connect it to your computer, the computer recognises that it has photos on it that are not in your photo library so that's why the "camera" option appears. To get rid of this, you must remove the pictures from the "Camera Roll".
So, first of all, if you want to keep the pictures, copy them onto your computer. (If you do want them back on the iPod, put them in the (photo) folder that
Syncs with the Touch. That's usually the My Pictures folder on a PC.) Once they are safely copied onto your computer, delete them from the Touch's "Camera Roll".
At the next
Sync those pictures will be back on the Touch and at the next re-connection of the Touch to your computer, Windows will not think it's a camera!
Okay, so Anna said the same thing, but in less words!
Phil