Apple still makes a ton of money off the iPod Touch (btw...what is an iTouch? lol). There's no reason for them to stop selling it because it isn't doing anything negative to the sales or popularity to the iPhone, it's really not even in competition with it honestly...people still buy the iPod Touch all across the map when it comes to what it is marketed to.
I know that my brother in law and his wife both have iPod Touch's because they can't afford to have iPhones, but they love using the features of it (iPod, Games, camera interface, FaceTime, iMessage, etc)...he has a cheap POS phone that he pays like $30/month for and he has an iPod Touch that he can use for the cool features we all love our iPhones for. That's one example in a sea of examples why the product is still relevant and, to be honest, quite popular.
My only question on existence in Apples line up would be the other iPods in the group, but even there, the nano has found a brand new appeal with watches, and the shuffle offers those who want a no non-sense function of music with nothing attached basically.
Apple sells these things because they make A LOT of money on them...ALL OF THEM. If they weren't making money, they wouldn't sell them. Im guessing Apple sells more iPod Touch's than Macbook on a daily basis, why would they want to stop that kind of revenue?