Sojho, I am not an ipod touch expert, but ipod touch 3rd generation seems to exist in the market! i agree with your point of view, as it might just be a software upgrade from the earlier version. But still they are called iPod Touch Third Generation.

CNET REVIEW of iPod Touch 3rd Generation

@ Wal-Mart

@Mac-Mall



Also you can see the links I have posted above, where different vendors selling the products as iPod Touch 3rd generation!

Apple store says "Already own an iPod touch? Update to the 3.1 software for just $4.95." This ,might mean all the hardware/processor remains almost  the same and only difference is software, but I haven't looked at it in details about product specification!!

from CNET Review
No matter how you choose to define the iPod Touch, Apple's third-generation version has arrived, flaunting 8GB,
32GB, and 64GB capacities priced respectively at $199, $299, and $399.
Its hardware design hasn't changed dramatically from the model we reviewed in 2008, but neither has its status as the world's most feature-packed portable media player.