Apple has upgraded the iPod touch and its iPod touch/iPhone software at the highly anticipated 'Let's Rock' product launch in San Francisco.

The new iPod touch is slightly thinner than the previous model, and sports a contoured stainless steel design.

The iPod touch now incorporates the side controls used in Apple's iPhone so you can adjust the volume without using the touchscreen. Like the iPhone, it now also includes a built-in speaker. "It's for casual listening; it's not for audiophiles," said Apple CEO Steve Jobs.

It also has built-in software for the Nike + iPod running accessory and Jobs revealed users would no longer require the dongle attachment. Nike + iPod hardware is built into the device.

It also has a new iPod touch 2.1 software that sports numerous interface enhancements and the new Genius Playback feature, also introduced to iTunes 8 at the event.

The 2.1 update will be available to iPod touch and iPhone owners on Friday. "It fixes a lot of bugs" said Jobs "You'll get fewer call drops and significantly improved battery life. You're not going to get some of the application crashes. And backing up to iTunes is dramatically faster and there's some great new performance enhancements."

The iPhone 2.1 update is free to all owners of iPhones and iPod touch users that paid to upgrade to the iPod touch 2.0 software update. iPod touch owners running the original iPod touch software will need to pay a $9.99 upgrade fee.

The iPod touch itself sees a price drop. The 8GB model now costs $229, the 16GB model costs $299 and the 32GB model $399 (UK prices TBA).

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