The classic does hold more, a lot more. Mind you, thats a hell of a lot of music and if you have that much, or intend to, then the decision is somewhat academic, except you don't have to have it all on there at once.

Going back, I bought the 5G, (earlier version of the classic) and then was bought one of the first touch models. Using the same headphones, same copy of any particular music, the 5G (classic) sounded better. Not just certain types of music, but overall to an extent I reckon many could agree.

Now, I have an iPhone and still reckon my old 5G gives a better (but not as marked as before with the first touch) sound.

The latest touch will have the same DAC and other technology as the iPhone, but if the classic has the same as its predecessor, there is a chance that it will sound ever so slightly better. (The iPad sounds exactly the same as the iPhone.)

A touch can be so much more than a music storage device though, much much more.