I've had many handheld game / music units over the years, but I really love the iPod Touch. Yes it only holds 8 gig of music - but its gaming abilities far more than make up for that!
First, the MP3 side. We already own 60 gig iPods so they hold "all our music". I admit it is very nice knowing your entire library is there with you, including all your audiobooks, so that no matter what you want to show to someone or listen to, it's all there. Still, with 8 gig in this unit you get at least a fair portion of your library available. So you can have a few stories to listen to, a bunch of your favorite songs and then a collection of photos as well to show off.
What makes this great is that songs are just ONE part of what this unit does. It is a FANTASTIC gaming system. You can go online very easily with its built-in wireless and download literally thousands of games. Most are free! Some are a tiny cost - maybe $2 or $3. The games are quite addictive and fun. I can name several off the top of my head that I play for hours. What makes them great is that the iTouch has a built in motion sensor. So you can tilt, twist, and spin your way through the games. Plus the screen is (obviously) touch sensitive! There are lots of games that you play through subtle touches. You can even play drums and keyboards!
There are many mail hook-ins so that you can get your mail and keep in touch with friends and family on the go. They have access to Google maps so that you can figure out where you're going. There are calculators. Notepads. Contact lists. You can have your entire world organized and there.
I've been playing with this for many months now and really don't have any complaints about it. I wish it'd give you more warning when it was running low on battery without interrupting what you were doing. The connector pins are slightly different from other units, but all my chargers work fine with it and I haven't run into anything I wanted to use with my iPod Touch that I could not use.
Buy the iPod Touch 8 gig from Amazon.com