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.