S is faster, as in pages change faster etc, I find my 3G quite slow at that.
S also does video recording (3 only does that if it's jailbroken), has a better camera and I think has more memory.
S also has a built in compass which is great for the apps written for it, such as Starwalk, which you just point at the sky and it overlays the stars/constellations on the area you're pointing at, move the phone around the sky and it knows which way it's pointing and moves it for you.
Compass also allows for the 'augmented reality' programs that overlay data on the view from the camera, so that you can point the phone at a street and it will overlay graphics with things like where the nearest tube station is, or the nearest bank/restaurant of choice etc. Very neat.
S also has voice control, which is particularly handy if you're using it plugged into a bike intercom as you can now voice dial/hangup and control the ipod just by speaking commands, something that's sadly missing from the 3g.
Basically I would rather buy a second hand Iphone than a new Ipod Touch. The touch I bought for this trip is great so the iphone just has to be that much better...