First of all iPod Touch is not a great PMP. Its more of a PDA with multimedia capabilities. The audio quality is mediocre and videos need to be converted for the device. The (screen) size is too large for it to be a compact Music player and too small for it to be a decent video player. The resolution is neither 4:3 nor 16:9. It however has the benefit of apple app store.
Zii already seems to be a better PMP except for the screen which is same as the Touch and I consider that a huge mistake on creatives part.
You get a lot better AV capabilties including HD out and consequently HD media playback. Even if Apple can include all those features, they woundn't. They would spread those features over 3~4 iterations in order to make the people buy a new revision of the Touch every year.
If Creative can keep prices competitive in the market they can make it sell as a PMP even if they do not have a huge number of apps for the platform. If they can get apps for the platform, that would just be an added benefit.