Skype video calls work on the iTouch and pretty well at that. [I am not speaking to camera image-related or processor speed-related distinctions, but it works well enough for me in comparison to the iPhone 4.]

While I haven't compared the newest iOS iTouch against my iPhone 4S, I have been comparing my Skype video calls where my iPhone 4S is communicating with people using the (pre-latest iOS) iTouch or the (pre-latest iOS) iPhone 4. Both generally seem to work out just as well as each another when communicating with my iPhone 4S, although the iTouch video images sometimes seem more jumpy than the iPhone 4 video images I see (on my computers and/or iPhone 4S).

I loaded the new operating system on the iTouch and iPhone 4 last night, so not sure what if anything that may have changed when comparing it to my iPhone 4S Skype video calls. I'll check it out later today and get back. I expect it to work just as well as it did earlier in the week.