The iPod touch is not a phone, so I fail to see how it would replace a Treo650. But, for sure it would do all the functions (other than phone) and more. Tons of apps to do just about anything, a good reader, if you can handle the small (larger than Treo) screen.
If you want to fully replace the Treo, an iPhone would be a better choice.
If you don't care about the phone part, the iPad (though not as portable) is better at reading, surfing...etc.... iPod Touch, iPhone and iPad all have great reading software from several companies. There is the Kindle, Borders, Stanza, eReader, B&N, iBooks, Goodreader and more apps available.
Just some quick thought off the top of my head
