I once worked with a guy who rigged his phone and car with a gizmo that would allow him to send texts that he would input using just one button that he wouldn't even have to look at: he would just use it to tap out Morse code and when he was finished, the message would be sent via SMS. I don't remember whether he could listen to inbound messages in Morse code, but it would be a logical conclusion.
I imagine it's still somewhat distracting, but a lot less than actually looking at the phone.
The biggest problem with texting or talking while driving is that your attention is focused on texting or talking rather than on the road. Adding the additional cognitive load of interpreting Morse code may make things worse rather than better.
If he were a HAM operator, or someone with experience doing Morse Code for a living, I expect it would probably be as nearly automatic as typing would be for you or me.
The problem with touchscreens and, specifically, touchscreens in vehicles, is that there is no feedback to let your fingers know when you're actually touching a button and when you are not. No feedback means that I have to take my eyes off the road to look to see if I am tapping the correct area of the screen. As you can imagine, I am a huge fan of "old school" knobs and push-buttons in vehicles precisely for that reason, and the recent trends towards touch-everything drive me crazy.
Back on point towards your comment, maybe "touch" timing wouldn't work. But phones have something in-dash systems don't expose to the end-user: accelerometer. If you could detect a tap from the accelerometer instead of relying on touch, you'd be onto something (of course, you would have to filter out road noise, which is not trivial, but probably doable).
It's not about playing a sound on release. It's about feeling where the button is in the first place. When you place your finger on the screen, you can't tell where on the screen your finder landed without looking. It's much easier to feel for and grab a knob and turn it or a physical button and push it, than it is to accurately place your finger on a screen and keep it in the same position for repeat actions (especially on a more bumpy road).
On my car stereo, for example, I have 6 buttons for pre-programmed stations: [1][2][3][4][5][6]
Without looking, I can put my finger just to the left of [1] and select a station by feeling my way across. There is no way to do that with an in-dash touch screen without looking. Maybe you could play a sound to designate which button your finger is currently on, but what if you don't want to press that particular button (i.e. you land on [2] and you want to select [3] instead, but -oops- a bump in the road caused momentary disconnect between your finger and the screen [make no mistake, this sort of thing happens often])? Then you need a way to "confirm" a selection, and we're back to the original problem.
I imagine it's still somewhat distracting, but a lot less than actually looking at the phone.