There's been a lot of hype about the iPhone in the US, and the iPod touch is basically a version of the iPhone without the "phone" part.  This makes is good comparable gadget.  Sadly, it's not only lacking the phone radio transmitter, but also microphone, volume buttons, bluetooth, and more.  Some of this has been rectified with the new revision 2, some hasn't.  (Revision 2 has bluetooth and can accept a microphone headset.)

One thing the iPhone and iPod don't have is a decent Voice over IP implementation.  Part of the problem is Apple's strict developer policies, and part has been due to the hardware.  An iPod touch would make a nice VoIP phone if it had a microphone and someone ported Skype or Google Talk to it.  Update: The iPod touch revision 2 Makes a nice Skype phone, but only if you leave Skype running constantly so it can receive calls, and want to use a headset all the time.  Even with the text clients like AIM, though, since it doesn't have a keyboard, typing very much is beyond painful.

In comparing these two, I found that although they are both PDA-Type devices, and they appear to have overlapping features at first, they are very different.

The iPod touch is a fancy Music and Video player with a web browser and email client built-in.  It has a very nice interface for playing music and videos, which you can rip yourself or download from iTunes.  The iTunes support means that you can use copy-protected  movies and such from the Apple store, which as much as DRM sucks, is very convenient.  On the other hand, the iPod can *only* be accessed via iTunes, which is annoying at best for power users.   Ironically, the iPod can't download podcasts over the air, but the Mylo (and PSP) can.  Update: Newer iPod OS versions can download Podcasts over-the-air.

The Mylo has no mail client at all, but one can of course use web mail.  That means, though, that you can only read or write emails when online.  On the chat side, both the iPod and the US version of the Mylo have AIM.  The Japanese version of the Mylo has Google Talk (which I prefer).  All versions of the Mylo also have Skype chat capability.  The fact that the Mylo has a keyboard means that this feature is actually somewhat useful (Except that, if I am in WiFi range, I can often use a PC).

The version of Skype on the Mylo of course also includes support for voice chat, Skype-in, and Skype-out.  This means the Mylo can be used for free skype-to-skype calls, and also to make and receive calls from normal phones.  Since Skype has very competitive rates (especially for international calls), this makes the Mylo an ideal ViOP cordless phone.  This is by far the killer feature of the Mylo.  The Revision 2 iPods (and the iPhone) can run Skype as well, now that it's finally been ported, but it is essentially limited to outgoing calls because as soon as you go to another app, Skype is gone, and can't monitor for incoming calls).

One of the supposed strengths of the iPod these days is the availability of 3rd party applications.  Although the quantity of these is high, the quality is sometimes low (look at how many "flashlight" apps there are), the price high (anything is too much for many of them), and they have many artificial limitations imposed by Apple.  Still, if you're looking for a music/video player, the iPod is for you. Does the Mylo have 3rd party apps?  Yes, sort-of.  It has "Widgets", and it also has games available for download.  

Although both machines have web browsers, the iPod's web browser is much more slick and speedy.  That may be mitigated by the fact that one has to use the touch-screen keyboard to key anything in, however.  Also, the Mylo supports Adobe Flash and other plug-ins, which means you can use many web sites that don't work on the iPod.  One annoyance is that the URL entry bar on the top and toolbar on the bottom are usually present, obscuring the view of the very top of the page.  Many web sites with mobile versions don't automatically detect the Mylo as a mobile device.  This can be cured by changing the "user agent" (The web browser it identifies itself as) in the settings, or simply bookmarking the mobile version of the relevant sites manually.  For example, the normal GMail site works fine, but the mobile Gmail site is much easier on the eyes.

Both machines have half-baked cameras.  The Mylo has built in video capture and you-tube upload facilities, though it isn't clear to me how many people actually use it.  My advice is that if you want decent quality photos, buy a real camera.  Besides the quality issues, there is no truly easy way to upload photos.  There is an "photo upload" option, but it all it does it send you to a special bookmarked page.  (The default is the Mixi photo upload page, but you can change it to Picasa, Facebook, Dropbox, or whatever).  You then still have to log in and upload the file manually.

If you want a normal cell phone, the choice (at least between these two) is clear, get the iPhone.  If you want Voice over IP, however, the Mylo is again your only real choice between these two, and one of the best consumer options over-all.

At any rate if you're in the market, check out the following comparison:

Mylo vs. Other Skype Phones

I've had some other Skype phones, but they had some issues.  The idea was right, the implementation wasn't.  One issue was slow response or clunky interfaces.  Mylo has fixed that.  Another issue was poor battery life, which Mylo also improves upon.  Silly as it may seem, lack of a cradle (like a normal phone would have) also got to be a major annoyance in charging the other phones.  Finally, complete lack of a web browser meant that I couldn't use Free WiFi hot-spots that required you to click "yes" to an agreement before accessing the internet.  If you look at the Mylo as a laptop replacement, then it's value is questionable to me.  If you look at it as a Skype phone, then it's by far the best one I've seen.