I have a 16gb iTouch and I love the gaddam thing. I wish I had an iPhone so I could have everything rolled into one device, but it works well enough. Plus, there are TONS of apps that my 3 year old son loves. If we're at the store, doctor's office, or in-law's place, he'll take the iTouch and go to town. He knows how to swipe through all the photos and everything.
Plus, it has built in Wi-Fi, which comes in handy for updating apps and checking weather.
Get the iTouch.