I bought the iPod Touch 2G almost a year ago and have used it very often since then. It is a wonderful device, and can even be a reasonable replacement for a computer in certain situations. I shall give an honest review below of what I think of certain aspects of the device. (Note: the sound quality is being tested through relatively low end headphones, and you may find a completely different experience with better ones. Oh and this is my first review.
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The Sound Quality
The sound quality on this device is really good, very clear and natural. The bass is detailed and punchy, the mids are crystal clear and the highs are pinprick sharp. There is no over-exaggeration of a particular pitch and the sound has a nice depth to it. The built in amp is relatively capable and after the OS 4 update the Equaliser settings are very good.
Internet
Browsing the internet on the iPod is a very nice experience. The Mobile Safari browser is responsive, efficient and full of features other mobile browsers lack. The only main feature it lacks is Flash, but hopefully Apple will rectify this at some point in the future. It's simple to use, and feels very natural to the point even an utter technophobe ought to be able to use it. Note that some people seem to be having issues with Safari crashing after updating to iOS 4. I personally have not experienced this, but you may wish to wait before upgrading just in case.
Video
Whilst viewing video on the iPod itself is generally quite good, there are several things which hinder the experience and hold the device back. First of all, the screen has an atrocious contrast ratio - the difference between dark and bright colours isn't anywhere near as high as one would expect. The aspect ratio of the screen can make viewing certain videos strange, though it's not always an issue. iTunes does convert some types of video into a type playable on the iPod, though this is very hit-and-miss as it does miss out many common file types such as .AVI.
On the positive side however the screen is very sharp and detailed, the video playback is rather smooth and colours are generally well recreated. Conversion software is a must if you are interested in video on the iPod Touch 2G.
Interface
The interface on the iPod Touch and iPhone is simply second-to-none for its simplicity and cleanliness. And of course, it's shiny! It responds very fast to user commands and interprets them correctly almost all the time. Despite now being outdated tech-wise, the iPod Touch 2G still works well under iOS 4 - it responds fast when browsing through folders of apps, returning to the home page or opening an application. Note however that it doesn't officially support Multitasking, so if you consider this a must-have feature you are better buying a 3G or waiting for the next update which will probably hit September '10. (Alternatively you can jailbreak a 2G if you already own it)
Battery Life
The battery life on the iPod Touch 2G is generally very good. I personally find it will last upwards of 24 hours music playback. However when playing games my device can only last for an hour and a half from full charge.
People seem to be encountering similar issues after upgrading to iOS 4, so again if you are on a previous iteration of the software it might be worthwhile sticking to your guns for the moment.
Miscellaneous
The YouTube App which comes pre-installed works very well and some videos are even surprisingly high-quality. The App Store has plenty of worthy apps to download, many which are very useful. Ranging from Internet Radio to Lightsaber Duels, there's bound to be something to interest you. Photo viewing on the device is a pleasure, it's very natural and as always the interface responds very fast to your demands. There are also lots of photo manipulation and editing apps available through the App Store. Watch out for the back of the device - if you like to keep it new and shiny you had better get a protective cover for it pronto. As most people will know, the rear of Apple's iPod devices are a nightmare with scratch resistance and can look terrible after even a few days use.
Overall
For someone who is only interested in music, this is not the right player for you. For those interested in games, photos, videos and the other features the iPod Touch 2G has then I would definitely recommend it, though again be aware that the iPod Touch typically has a yearly refresh in September. This could mean we'll have a 4G soon.