I have won an iPod touch 4G 8GB in an online contest. I just wanted to know if I could exchange it with a 32 GB version? If it is possible, then what would be the cost?

You would have to contact Apple.

Probably not. Apple Stores in general will only accept returns on items purchased directly from them (most retailers will have a similar policy), and without a receipt from the contest showing such a purchase, it's highly doubtful any store would accept a return. You can of course ask, but most likely you will have to sell the iPod - if it's new in the box you can probably get a good price for it - and put that money towards the model you want.

Regards.