I think they are pretty much the same but Touch has no phone, mic, speakers, bluetooth or camera. It does have wifi internet tho.
Latest revision of the iPod Touch includes volume buttons, better battery, and a built-in speaker.
Anyways, from what I've seen, iPod Touch and Phone are basically sisters, just the Phone has more toys (that being the phoning capabilities, GPS, and camera)
I quite enjoy using mine in class (using my campus' WiFi) to look-up image references while drawing.