That is simple, convienance.......why carry an iPod Touch, and a phone, when I can carry one and do the samething.....some people want to browse, playsome games, listen to their music on a morning/evening commute.....just because it is a smart phone does not negate the needs.....there is NOTHING you need to LEARN to use an iPhone.....it is a simple "Plug and Play" type device....I can speak to it because I have owned both....now when I came to Android there was a learning curve. Guarantee if you did a poll of the average person walking down the street and handed them an iPhone and a Droid, most would be able to figure the iPhone out pretty darn quick versus the Android....heck my 5yr. old has a total grasp of my wife's iPhone and has her own iPod touch which she uses with no help.
They have 32GB mp3 players that are smaller than the iPod Touch. The fact that you even mention an iPod Touch proves that people have been brainwashed by Apple. Yeah, kids like the iPod Touch because it's the closest thing they can have to a phone without being a phone, but if all you REALLY want is a phone and a music player (meaning nothing else) get a regular phone and a Sansa mp3 player. Those two things together are smaller than an Android or and iPhone. Otherwise, if you want a smartphone, you should be willing to learn.
Like someone else said, Android doesn't have to be hard. Just because people do some extreme things with it, that doesn't mean you have to do anything extreme with it. Heck one of my friends has had an Android device far longer than I have, but I bet I've done more to my phone in the first 1.5 months than he's done to his in the last 1.5 years and I haven't even rooted the thing yet.
I by know means am trying to put down anyone who wants an iPhone or has an iPhone, but the point is that Android really isn't that difficult. I mean if you're willing to go from a flip phone or a feature phone to a smartphone, you might as well try Android as you'll be learning something new regardless. I know you said that the iPhone has no "learning curve", but everything has a learning curve if you've never used it before, it's just a matter of how steep that curve happens to be.
I bought my wife a OG Droid off of Craigs List 2 months before I even got my Thunderbolt and I told her that I could get it set up for her, but she wouldn't let me, she wanted to do all of it. This is from someone who isn't very tech savvy, she's the artist, I'm the engineer/developer/technical geek and she had a blast setting everything up and she came from a Samsung Reality. The OG Droid is starting to give her a few random issues so I may do some of the more technical stuff with it for her to make it a little better (like putting GB on it perhaps), but again, just setting it up isn't hard. She was thinking about getting the iPhone 5 when her upgrade comes due in January, but she's now probably going to stick with Android.