Essentially I'd like to know just how compatible are the iPhone and the iPod Touch. I would like to know if I could buy an iPod Touch (and thus save some cash) and develop iPhone apps on it or if I really should spend the extra money and put up with AT&T and get the iPhone.
What exactly is different between the two devices (other than the missing phone part in the iPod Touch).
Has anyone done this successfully? Or am I crazy for even thinking it?
EDIT
I've corrected the references to iPod Touch in the text so that @person-b won't strangle me..
Also, i would like to make sure that I point out the fact that I really am interesting in the feasibility of developing iPhone apps on an iPod Touch.
As far as general software development goes, getting an iPod Touch is a fantastic way to get into iPhone app development. I live in Nebraska, where AT&T coverage is spotty at best (my friend's iPhone doesn't get a clear signal in my house). You won't get the bells and whistles of a 3GS, but you'll save on the up-front investment.
I recently purchased a MacBook and a 32GB iPod Touch to do just what you're suggesting - get into iPhone app development on a budget. In the end I plan to pickup several more devices, but just to get started it doesn't make sense to break the bank. I've developed Windows and Linux software but I'm new to Objective-C and the Mac platform in general, so I'm expecting a learning curve. I'd prefer not to be forking over $100 per month to AT&T while I get up to speed.
Here's what I paid for new-in-the-box hardware and software from Apple to get started:
All told I've spent $1500 (including tax) to have a viable development platform. According to BillShrink the TCO of a 16GB 3GS with an average usage plan is $2800 (http://www.billshrink.com/blog/iphone-versus-palm-pre-versus-android/). Add in the MacBook and you're up to nearly $4000 in the first two years. I got 2X the capacity for $440...
While I agree that going straight to the iPhone provides the most flexibility, I also think that the iPod Touch is a great introduction to Apple's new software platform. You can save up to $2400 (depending upon how much your current cell plan costs) while getting a feel for the development process.
Update: One major reason to get the iPhone 3GS is to get OpenGL ES 2.0 support. If you want to do any advanced shader-based rendering, the 3GS is the only iPhone that will work. The 3GS is also nearly twice as fast as the 2G iPod Touch for OpenGL ES 1.1 code. Source: http://toucharcade.com/2009/06/20/iphone-3g-s-vs-ipod-touch-cpu-opengl-es-benchmarks/