To some extend, iPad does look like and functions like a giant iPod touch. And there is a market for giant iPod touch, with more real estate, long battery life, add 3G and hence there is iPad, which becomes a new category of devices.

Having said that, iPod touch is primarily a mp3 player and secondarily other stuff (surf the web/play games etc). However, when it comes to web experience, I believe you should know that sometimes its a bit of a pain with that small screen. Plus so many things you can do on iPod touch, it just does better on a bigger screen (minus the pocketability).

So if you have an iPod touch as mp3 player primarily, then you don't need an iPad. But if you use a lot of Safari, emailing, social network apps, some amount of gaming and wish to upscale that experience (and have room for its size and weight), then by all means go for the iPad. In that case, iPad will totally replace your iPod touch. But if you want a bit of both worlds, no one will stop you from having both. Waste? It depends on how you use them.