iPod touch is a great iPod, a great pocket computer, and a great portable game player. Listen to a mix of songs automatically put together by the new Genius Mixes feature. Watch a movie. Surf the web. Download countless apps.  View rich HTML email. Find your location and get directions with Google Maps. Discover games and apps you're sure to love with new Genius recommendations for apps. And since iPod touch now comes with the latest 3.1 software already installed, you can start using fun, convenient features right out of the box.

This little gadget has been perfect for what I need. I've had it for almost a year now.
I use it for:
Music (of course)
Photos/ photo sharing
Internet browsing
Email
Apps...
Facebook
Banking
Maps
Cookbook
Bible
Hymnal for church!
Radio stations
Dictionary
Language Translator
Conversions
Games
There's tons of apps available (many free) and for online or offline use. Everyone is catching on to the app thing, so there's new ones every day.
I travel a lot so this works great for me. I can keep it on me easier than a laptop and access the internet anywhere I have WiFi. Plus several of the apps I use keep me from having to lug other things around with me that the apps can replace (atleast for travelling).
My three old plays with the kids apps on it and has dropped it several times with no damage. It's very durable.
I would highly recommend using a shell and screen protector however. If nothing else, it'll keep it in top shape.
My husband has the 4th generation with camera. Eventually I'll move up to one of those!