My iPod touch takes gigantic videos; how come it takes such tiny photos? Is there any way to take higher resolution pictures with it?  The videos are massive!
No, you can't currently. 

Im assuming this is a 4th gen iPod Touch - since its the only one with a camera. It can do 720p videos, but it looks like they also limited the picture size to be about the same. This was a large complaint when the new Touch was announced, since the iPhone now has a 5mp camera.