Q: Changing IPod Touch

To question #1, yes you can recycle. You could also reset it and pass it on to someone else to use.

On # 2, we'll never have those answers here. You will have to wait until the next iPod is released.

Keep in mind, an iPod is not simply a stripped down iPhone. They may never have the same features, as in Touch ID.

You can recycle it using one of Apple's partners, and you'll get some moeny for it.

http://www.apple.com/recycling/

You can sell it on Ebay or Craigslist or things like that for likely more money than recycling would produce.

Give it to someone that can use it.

There are many things you can do with an iPod that do not involve throwing it in the trash. Not sure why you would think that is an option. 

Make sure you follow this support document before getting rid of it so the next owner can use it:

What to do before selling or giving away your iPhone, iPad, or iPod touch - Apple Support

With that said, the camera in  the 6th Gen iPod touch is in fact better than the one on the 5G.  5MP vs 8MP.

iPod touch (6th generation) - Technical Specifications 

iPod touch (5th generation) - Technical Specifications

As to a potential 7th Generation iPod nobody here would know what it may or may not have. Or if an when it may be released at all.

What says the camera in the 6G is words than the 5G?

IMO, better is a point of view. Those videos could have been altered to make a point.

Just note that there was 2 years between the 4G and 5G iPod touch and almost 3 years between the 5G and 6G iPods.

There's no guarantee Apple will be releasing a new iPod Touch this year.  But no way to know either way.  So keep that in mind when you making  a decision.