Yes, I'm using the Touch with headphones. And I did the same thing, using an old router as a bridge with the dd-wrt firmware in order to have a good signal in the place of the living room where I like to sit and listen to music. I'm really pleased with the results, you have access to your entire collection without any lag and in lossless quality. The only issue is the battery :(
I don't really see any way around that. You could get one of those external battery booster devices that plug in the the bottom of your Touch and top off the charge. But those add bulk and are not really ideal for daily use. Too bad Apple doesn't do user-replaceable batteries. A high capacity extended life battery would probably do the trick for you.
Are you stationary when you listen? Maybe just having a dock, to set the Touch on and charge it while you listen, could be the answer.