I think kids are part of the market, but touch has also been a good multimedia device for anyone who didn't want to pay for a data plan, or who wanted a spare device.
I can't remember exactly what I paid for my touch 4 64GB when it was new, especially because I bought overseas and there was an exchange rate involved, but it was more expensive than some mini iPads.
I have a smart phone (several generations of iPhone and now Android), and my iPhone 4S has 64GBs, but I bought a touch partly because I didn't want to worry about draining my phone battery, and because my touch is sort of disposable -- I don't put any contacts, email, etc., on it, so if it gets ripped off on the subway or such, I don't have to sweat it.
