Fred says he doesn't like the iPod Touch. I think it's awesome, but I use it much differently than Fred. I don't use it as a music listening device (that much) - but it's bar none the best portable video solution out there.
Recently, we went on a family vacation. This means entertaining the kids during flights, flight delays, as well as in downtimes. For us, this usually entails slogging a bunch of DVDs, a laptop (or two) on which to watch them, and then not necessarily having a way in which to watch them on the screens that exist wherever we are going.
Basically, this whole experience is so much better with the iPod Touch.
A few hours with Handbrake and these DVDs ahead of time and they all load an a 16 Gig iPod touch with no problem. Just use handbrake's iPhone setting and you are good to go.
In fact, this has also become my primary mode of entertainment while travelling myself (on my iPhone).
Now, the secret weapon is the iPhone / iPod video cable.
It comes in both a composite video and component video version, but if you use this for travelling like I do, you will find many more legacy TVs out there that support composite video than component video. Especially in hotel rooms where Spectravision has hijacked all the ports except the composite video in jacks on the front of most hotel TVs.
One of the cables is a USB cable that plugs into the included A/C adaptor, so you don't have to worry about using your battery while watching videos (and it charges too).
So anyway, as a dedicated music device, I agree with Fred that the storage is too small- I'd love to see a 80 Gig version of the iPod Touch / iPhone - but as a video device, the iPod Touch is revolutionary.