The above picture is a new case design for the iPod Touch, found by website, HardMac. Notice something different about the iPod? It has a camera on the top left corner on the back side. Complete with the little LED flash.
Of course that's no definite proof of an iPod Touch with a camera, but this isn't the first time we hear rumors of an iPod Touch with a camera. Still, most rumors seem to imply a front-facing camera, which would make sense if using FaceTime, but taking pictures of others requires a rear camera as well.
9 to 5 Mac suggests that the unit may take video as well, which sounds reasonable seeing as how the 3Gs and the iPhone 4 also capture video. This may mean that it can run the iMovie App, which would require Apple's higher-grade A4 processor (found in the iPhone 4 and the iPad).