If you buy an iphone you get a few extra features, one of them being the phone with the data service that you will be paying a minimum of $70 a month. You'll get the GPS, a few bells and whistles, and you'll be paying for AT&T service for the next two years. If you need a phone its a great phone and the service is ok (not great, but ok). I seem to remember that an earlier version of the itouch didnt have the contact list, or maybe it was calendar but that might not be that important to you. But you can check that.

An ipod touch is just the player itself. You get wifi ability (you need to be near a hotspot) but its less expensive, thinner/lighter, longer battery life, and its standalone -- no monthly service, no AT&T. You can still put applications on it, some of which will not work (those that rely on features only in the iphone such as calling, location, etc.

You can still use itunes to put photos onto the touch or the iphone.

As for the 2nd question, you can get up and running for about $300, you can get an inexpensive netbook for about $250 running XP and software to store the collection for about $50 give or take. The units are small enough that you can carry them without difficultly and maybe its a better choice than the itouch (unless you wanted a music player as well).