It's the smart move. Also, it ties in to Apple's idea of combining media app's, so now home users can edit video content with iMovie and show it on their iPod. The bigger screen really opens up the visual real estate (it'll be great to port Linux over to this screen).
I'm disappointed that the largest size is just 60GB, I was hoping for at least 80GB. People will need it when they realize how big video content is. It's deceptively easy to fill an iPod, all you need is to have a few uncompressed formats (for photos or music or, now, video.) And if people insist on using their iPod as a firewire drive, they'll need even more space available to them.
Apple is doing a great job of providing products for everyone's tastes. From the teeniest of iPod's to the tiniest to the full-sized, Apple has completely dominated other companies in this market. It's also been very sucessful in driving sales of new Apple hardware. This all combined with Microsoft's laggardness, can we be seeing the turning of the tables?