Touch as in Cocoa Touch
ie, the API that gives the iPhone and iPod Touch their touchyfeeliness. No great mystery there, although the Rev 2 iPod Touch has another 120MHz under the hood, making it a marginally better choice for gaming and other fun things. I don't think there's actually a mechanism in the App Store that differentiates between the various devices, so any app should run on all of them.
Presumably this version of MGS will break new ground by featuring a gameplay/cutscene ratio greater than 0.3