Like FatBlock said, it's a lot down to the cost of the memory, although it's also partly dictated by marketing.
The iPod Touch is £165 for the 8GB model, but £283 for the 32GB one. The only significant difference between them will be the memory modules, they are quite possibly identical except for how much of the PCB is populated.
There will also be a demand factor, since a 32GB one is clearly more desirable than an 8 or 16GB one, they can ask a price premium, and probably get people to pay for it.
The extra 24GB of memory between those two units costs you just under £120, a USB flash drive for 32GB (you can't generally get 24G, only powers of two) is £50 to £80, so you pay a little over the odds for the iPod.