Well, to be fair, the "upgrade" is for the thinner 80GB device, since the thicker version was dropped.
I think what is happening now is that the Classic has come full circle. It started as a music player, gained video capability, but now with the Touch, has returned to its roots. Sure, it plays video quite nicely, but its not the device that the Touch is. And if video is your thing, which device is more attractive? People just weren't buying the 160GB, and as Flash grows larger and cheaper, eventually i see the Classic being discontinued. A 64GB Touch will probably be the tipping point.