I got a 64 GB iPod Touch for Christmas and it is an amazing device, i use it everywhere. To me it is a pocket-sized iPad that serves as my electronic swiss army knife, without needing a data plan. My only pet peeve with it is that I wish I could turn off cover flow, like I can on my iPod Nano. But beyond that, an optional 3G capability is the only "missing" feature that I would love to see added.
As far as whether it is "killed", who knows, but I seriously doubt it. It fufills a nitch in their line and serves as a gateway into iPhones and iPads from the iPod. Besides, even though I am 55 years old, I suspect its biggest market is for youth.
However, it would not surprise me to have it rolled into the iPad line at some point. You could even call it an iPad Nano, or more likely, I could see it slightly upsized to a 4" or or 4.5" screen, and then if a 7" iPad is later introduced, you could have 3 sizes of the iPad family. In any case, the basic functionality of this device will likely remain, whether it is called an iPod or an iPad.