That's in fact the tricky part ! If your iPod Touch is a 1st generation, the only possible input is through the dock connector using things as
http://www.alesis.com/protrack or
http://www.bluemic.com/mikey/ (which now has a line in). There is cheaper ones (around 50$), but harder to find. Normally, you can't download Everyday Looper on such a device, it's flagged as not compatible. If your iPod Touch is 2 or 3 Gen (with a rounded back), then in addition to the dock connector, you have a mono input through the 4 pins jack connector. It's intended to be used with headset microphones, but PRS has release this cable
http://www.prscables.com/guitarbud which I have not had the opportunity to test yet, and Belkin this :
http://catalog.belkin.com/IWCatProductPage.process?Product_ID=169368# .
My personal setup is much simple, as I mainly play acoustic guitar, I put my external headset mic in front of the guitar and that's it.
The iPhone platform is still waiting for a simple stereo line in/out cable, as it is what contains the dock connector. I hope the iPad will encourage a constructor to make one (the docks are identical).
Andy >