Apple has always expanded their lineups to reach the maximum possible market, going both down and up for price points.
I also think you have how customers buy products totally backwards. Apple makes products for a price point and margin. Everything works back from that. Large differentiators are size and power. No one first thinks “I want 128 GB of storage, what are my options.”
That’s not to say that Apple’s current lineup doesn’t have issues, or that there is no confusion amongst models. You correctly point out several of those.
I’d say much of the current confusion in the line has to do with maintaining price points and preparing for ARM in the coming years.
 - https://en.wikipedia.org/wiki/IPod_Classic#Timeline_of_full-...