I ordered my iPod Touch about a week after they first came out. They were the coolest things, and still are. An mp3 player that can play video on a big screen, surf the web through a wifi connection, receive and write emails, plus control many other apps and games with its touch-pad capability and accelerometer? That's amazing, no matter how old hat it has become within the last year or so.
I'm sure most people know what this thing can do, but there are so many little things I use it for that make it one of my prized possessions. For example, every school morning I wake up to it's alarm. The great thing about the alarm is that you can set it to only go off a certain day each week, or weekdays or weekends, etc.
Don't be scared about the touchpad keyboard either. It is very intuitive and easy to learn to type fast with. Many people, myself included, even use their iPod Touches to instant message people. It's amazing technology can somehow figure out which key you're pressing even though your finger is bigger than the key!
The music is great, the video is great, the youtube is especially great...but there are of course some downfalls to it. The battery life isn't exactly what I would like it to be, but it actually charges faster than I expected. I'm pretty sure they improved this on the 2nd generation though. To save battery life I usually keep the brightness low. Also, the home button (the physical button on the lower front with the white square on it) now only works half the time. That is really frustrating, but I think it could be because I left it in the car on a cold, damp day.
As for size, I would recommend getting the 16 gb one, or even the 32 gb if you want alot of movies on it. My 8gb is already full of music and apps, so now I can't put any full-length films on it unless I take a lot of music off.
Still, the reason I gave it a 4 is because it really is the best mp3 player out there for the price. Unlike the iPhone which is competing against many other smartphones, the iTouch is the most accessible and far ahead of other mp3 players.