There is no iPod Touch 5th gen. So everything you may have heard about the iPod Touch 4th gen (released last year) is what you will get.
iPhone 4 (current model) and the iPhone 4S (shipping in a few days) has a cell phone, better camera, GPS, larger battery, is able to transfer data over celular 3G network, faster CPU, faster graphics processor, more working RAM. The iPhone 4S will have the Siri voice activated assistant.
An iPod Touch does not require a contract, so once you spend the money, there are no additional charges (except if you buy apps). Buying a used iPhone, it can be used as an iPod Touch'ish device, although you may need to jail break it. You are jail breaking it, because it assumed you are not going to get a cell phone contract. If you are going to get a cell phone contract, then an iPhone would be better all around.