9 to 5 Mac spotted an auction on eBay for what appears to be prototype hardware for the iPod Touch — with a built in camera! The listing has since been removed, but it had two iPod touches, both bearing Apple’s DVT code, meaning they were close to the final version. The two prototype units were running what appears to be a custom OS called Switchboard. According to the commenters at 9 to 5 Mac, this is standard for Apple, as the hardware side don’t get to see the software, and the software side don’t get the hardware until the very final minute.
This appears to have been close to the final version of the iPods, and just before the actual announcement of the most recent round of iPod Touches, the internet was ablaze with rumors that they would have cameras. This shows that they did until until the last minute, when the feature was pulled.