Yes the touch can be connected to an LCD projector but you will need to purchase either the media cable with the composite ends (red, white, yellow) or the easiest is to purchase either the Apple or Griffin media docks that also charge the units. www.thetechtecher.libsyn.com
I was at the Christa McAuliffe Tech confrence in NH a few weeks ago and the apple presentors showed us a projector, kind of like a document camera that was about $65 dollars. You had to turn the brightness down, to about 25%, on the touch and put a piece of cream or off colored paper behind it to really show what was on the touch screen. It worked for a room of about 50+ people. If I can find the notes I took, I will let you know who makes the one he used.
That would be great to look into. I have been encountering similar questions from the teachers at my school (how to show the iPod touch screen for the things that aren't video or music related). Right now our iPod Touch program is in its infancy. About 15 teachers were given iPod Touches to be part of a pilot program to discuss how we might use them in our classrooms.