Difference is obvious: The iPod touch is an "iPhone without the phone part" - so far more than only a music player. Many of the Apps you can use on the iPhone - say games like "angry Birds" work on it, while obviously not on the nano. But if you only look for a music player - the new nano looks pretty cool and practical. We have some shufles and an old nano - the shuffles were great for jogging as you can clip them to your clothes - but without screen anything more than two or three playlists get confusing. The new nano is not much bigger than the shuffle and has a small screen big enough to scroll to the 8gigs of music... so the best of both former players.
So: For music only with a lot of practical portability, go for the nano.
For a lot more fun and games, go for the touch.
I have mine in a plastic sleeve when I carry it around and have not had any issues with the glass and I have had it for 2 years.
The main reason I prefer my touch is that the battery life, when solely listening to music, is amazingly long--at least 16 hours of continuous play long. I also like being able to link my calendar and my address book (between my computer and the touch). Plus, if I need the wifi capability, it is there. I can't tell you how many times I have used the free sbb site at a station to make sure I wasn't lost.
All the other features (games, widgets, etc...) are just there and occasionally used. I use it predominantly to listen to music, and I love it more than (ie-no comparison) I ever did my ipod nano. All the other stuff is just a bonus.
We use ours in the kitchen as an internet radio, as a Skype phone, for games, watching films on long car journeys, web-surfing (especially to check last-minute things before going out, and without booting up a PC) or the weather.
Lots of the other apps are really quite useful as well