The current iPod touch is on the same level as the 3GS, maybe even a bit faster. It has the same amount of RAM and the CPU might be a bit better.
iPods are released yearly so there is no reason why they shouldn’t be just as fast and have just as much RAM as iPhones. It’s right, though, that the oldest iPod touch (from 2007) won’t get the update. 2nd and 3rd generation iPod touches will but 2nd generation iPod touches won’t get multitasking (just like their brother, the 2nd generation iPhone aka iPhone 3G).
AFAIK it's a combination of the hardware not being good enough, and Apple not really trying to optimize for those devices (they'd be happy if you bought a new one). The iPod Touch went through several iterations, just like the iPhone; the latest iPod Touch is actually a bit higher specced than the latest iPhone.
Note that this is why standalone MP3 players have been unable to garner marketshare in Japan: everyone's cell phones were already their mp3 player (and they bought the music OTA via their phone, to boot). As is, the days of standalone music players are likely numbered.
What about the ipod classic? For the moment this gives a lot bigger capacity than you can get with a phone and for a lot cheaper price. Plus it's very straight forward to play music.
Although if you were to only carry around one device it would be a phone, just personally everywhere I go that I would usually want a mp3 player I carry a bag making carrying two devices a non issue.
I'm not sure why you would have doubted it. How would it have made sense for Apple to exclude it from the new software release?