I agree, the touch is a great product, but it is true that more people are getting the iPhone. If people were given a choice between the iPod touch and the iPad mini, more people would vote for the mini because of the bigger screen and similar price. Essentially, the mini is a big iPod touch and does pretty much everything the 5th generation touch does (Siri, FaceTime, messages, handling gaming).
I still like the touch, though I know sales have continued to decline as more people have gotten smart phones.
I received a mini iPad at Christmas but returned it. I might get one later, if Apple doesn't continue keep it a generation or two behind, technology wise.
Right now, I prefer the touch. I just ordered a touch 5 64GB. I use my current touch (4th gen 64GB) as a sort of disposable device -- I don't put contacts, email or such on it, so if it gets ripped off on the subway or something, I'm not going to worry about it. I also like that it's small enough to hold and manipulate in one hand if I'm standing on the subway. And I feel relaxed about using it without worrying about draining my phone battery.
When my touch 5 arrives, my touch 4 will go to my husband, so it can replace the iPhone 3G that's permanently docked in the kitchen so he can stream while he cooks.