Its kind of interesting how people react (hate) on the Pandora. This thread is no commercial, just a discussion!
The iPod Touch has this Cirrus DAC, which runs with 3.3V. It is DAC and Opamp in one. It is trimmed for efficiency, so you can have longer battery life on your portable device. The Pandora on the other hand has a dedicated audio section on its PCB. Since the Pandora is working, it is logical to assume that the engineers who created the Pandora also were capable to implement the audio section correctly. That given, sure it must sound better than the iPod Touch. I listened to the 4G iPod Touch and it was average sound.
Assumptions were about marketing and cost management.