San Francisco (CA) – Apple used its Let’s Rock event today to update its touch-based media player. The new iPod touch comes with a more rounded stainless steel design that resembles the appearance of the iPhone 3G, side volume controls and a built-in speaker. It also comes pre-loaded with a new software package that adds Apple’s new Genius music recommendation option and out-of-the-box support for Nike+ sports gear.

You have to look closely to see the design differences, between the old and the new iPod touch. It is wrapped in an overall thinner form factor a thinner packaging with a contoured stainless steel design. It adds a volume controls on the side of the device, like the iPhone, and a built-in speaker.

More importantly, the iPod touch comes preloaded with the updated 2.1 firmware that includes an enhanced user interface. According to Apple, the new software has some visual enhancements and offers direct access to the App Store. Apple said there are now 700 games compatible with both the iPhone and the iPod touch. "It's the best portable device for playing games," CEO Steve Jobs said. Apple clearly pitches the touch-based media player not only as a great music player, but as a handheld gaming device.

The new iPod touch software also adds the new Genius music recommendation feature that creates a playlist from the songs in your library that fit to each other and complements a similar feature introduced with iTunes 8. Additionally, Apple teamed up with Nike to bring Nike+ support to the iPod touch out of the box. A receiver that sends user information to and from the Nike+ transmitter is now integrated in the music player by default.

There has been some speculation on pricing and if we look at the revised iPod touch lineup, Apple’s strategy is clear: The touch is positioned clearly above the nano and as the iPod that drives average selling prices higher. While the nano tops out at $199 for the 16 GB version, the touch starts at $229 (down from $299) for the 8 GB model and is offered for $299 for the 16 GB version (down from $399) and $399 for the 32 GB model. A widely expected 64 GB touch was not announced.

iPod unit shipments are not growing as fast anymore as they did one or two years ago. In order to grow revenues, Apple will have to adjust its product family to drive average selling prices higher. Currently somewhere between $180 and $190, a $229 touch could emerge as the most popular iPod in the lineup, while the nano clearly moves towards the entry level segment. The 8GB nano is priced at $149.