There are four main consumers of 'iPod touch-screen' updates - iPhone owner, iPhone new owner, iPod Touch owner, iPod Touch new owner.
To be 'fairer' (though still not), Apple should instead charge $5 for each of the above four customers equally.

Still, it is not right for Apple to charge this. When it comes to technology & technical stuff, this kind of definition becomes fuzzy.
But in principle, everyone knows, new significant upgrade comes every few years like XP to Vista, Tiger to Leopard, iLife 06 to iLife 08.
This is not a new leap of software upgrade. It is only a firmware.

Additional unrelated comments :)
#Steve Job, you ain't doing a good job! You're doing STIFF JOBS!
What's the big deal with iPod Touch? As the old ones, one still need to touch them to keep going. :)
Why did you ditch the camera connector compatibility with new iPod models?

On first impression Apple charge because of accounting reason. But actually Apple is only after your money.

But charges on new features/version updates because they do not bring future income to them.

Worst still Apple brought new stuff into the market but ditch the supports on new iPod models when certain items seems making losses – like the iPod camera connector.

Didn’t Apple realise these are the things which attracted customers to iPod photo & iPod video?

But Apple added and improved many features on stuff like movie streaming, downloads, etc for free for version updates because they’re getting share from movie/music downloads. Obviously Apple does not receive any revenues from photos.

Apple is money-minded, aren’t they?