You may want to look through the head-fi search as there are many places to get an LOD from and Do-It-Yourselfers on the site who for a very good price would be willing to make you one.
The ALO mini-mini is relative to what you are willing to spend and the quality to which you would like. Some people swear by it while others say they do not hear a difference. most of the people on this site will say they are worth it, but that does not speak for everyone.
I purchased my Line out from TURBO and like his work, try PMing him for prices.
The iPod touch uses the same connector as the other iPods, so any iPod line out cable should work.
As for whether expensive cables are worth it - I'd say only if the rest of your gear is very expensive as well. Some people here have Ultimate Ears 11 Pro's, which are $1k+ headphones with custom fitting earpieces, $500 portable amps, special "iMod" iPods ($475 or so), so an extra couple of hundred for a cable on top of a $2-3k investment is par for the course.
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