I recently went through the exact same decision process.
iPod Photo is a bit bigger (negligible unless you're really crammed for space). For this size you get longer battery life plus the screen. The iPod photo is $100 for the same 40G disk space.
iPod photo
will not display downloaded photos from your camera, regardless of format. Either unit will store photos-- and in fact files-- of any format. iPod Photo only views photos put into it using iPhoto on your computer. Therefore, it's handy for carrying around pictures of your kids (or your previous dive trip), but not for viewing the photos you just took. There are other media readers that are designed to do this, so if that's a priority select one of them. However, they're dedicated photo storage devices, and I figure I'll get more use out of the device as an MP3 player first and a photo storage device second. You should view the iPod, photo or regular, purely as a portable hard disk with a limited but functional interface.
One thing I've noticed if the iPod 'disk mode' is turned on, then it can be plugged into any computer of the same platform (unfortunately no Windows to Mac compatibility) to have the files accessed. This means that during your trip you could find a computer store to download your photos and burn them to CD, print them, etc if you so desire. Incidentally, you can't access the music files put in the iPod through iTunes this way, a security feature Apple built in to prevent music piracy.
I ended up purchasing the 40 gig iPod and a Belkin media card reader. The extra $100 to view pre-loaded photos isn't worth it to me. It downloads compact flash cards easily-- worked perfectly the first time. So far, the download speed seems about the same as plugging the camera in directly using the USB 1.0 cable, so it's not blazing but it's serviceable. Carry two CF cards so you can be shooting one while downloading the other. I've heard complaints about battery life, but haven't used it enough to experience that yet. Guess I'll have to carry some extra batteries around, just in case.
Hope that helps.
Charlie