Any other major difference between iPhone and iPod Touch except telephone function?
The differences aside from design, size, glass back cover and weight is that the iPod touch has:


No cellular data
No GPS, cell tower, or other non-WiFi Location data
The iPod touch is not available with a 16Gb HD, only 8, 32, or 64.
No Digital Compass
Display is not fingerprint resistant
Video is 720p on iPod and 1080p on iPhone
Still photos are .6 megapixels in the iPod and 8 megapixels on iPhone
No image stabilisation in video mode
No Siri
256Mb RAM compared with 512Mb
£330 more in your pocket.
previous generation CPU (A4 vs A5)
less support (1 free support phone call vs 3)
no LED flash for camera
no vibration function
USB power adapter not included
headphones have no remote/mic


This compares the most upto date iPod Touch (4th gen) with the most upto date iPhone (4S) at time of writing

12-17 were added after Ken suggested more. +1 to Ken for spotting the additional differences.