I know it would be difficult considering the roms come from a certain folder and I'm not sure how you could connect a USB to the iPod Touch.
Can you connect a regular USB drive (flash stick, hard disc, etc) to your iPod Touch? If so, then yes, because that's what the Retrode is.
People have connected the Retrode to the iPad using Apple's camera connection kit (or one of the less overpriced clones). I guess your first thing to find out if it works with the Touch as well. google "ipod touch camera connection kit" or so
Is the iPod jailbroken, and do you have an emulator for it that can read from USB media? If so, then you might actually even use the Retrode in its intended way.
Hey this could be reasonable. Make a custom casing for the retrode that plugs into an itouch, and viola, you have a great handheld!