There are tons of ways to improve it.
Bigger storage, wifi, BT, built in Nike+, hd radio, the list goes on and on.
There always things to improve that some people can come up with, but who's gonna buy it and what are the profit margins. I read somewhere that Apple manages their development teams like a start up company, where it is a small number of teams and everyone has a hand in their products. One team would work on the ipod touch, and after a project they may get moved to the ipad, then the iphone etc... THere's only so many hats to work on a project, and when your money maker are iphone, touch, and ipod nanos, then macbooks, imacs, pros, there's only so much talent to go around. Hell, there's even the believe that i've heard discussed on tech podcast that apple's osx release dates is being effected by the number of projects they are working on. Now you have the appleTV that is revamped which is a potential money maker for apple that deserve the attention of engineers and programmers.
Plus, let's not forget how profitable the touch devices, where you can not only purchase songs ala ipod classic, but also games, apps, services, etc...
I am just hoping their never comes a day when apple stops making the "computer" as we know it. That is truly going to be a sad day for me!!!!
Anyway, its interesting where apple has come, from the hight in the 80s, to the lows in the 1990s. And their rise with the iMac, then the Ipod. Hell I remember buying my first 3g ipod with the touch wheel and 4 buttons in 2003 I think. Damn they truly have gone far!