I have a 2nd gen 8GB Nano, and had the iTouch 16GB for about a week before returning it for a full refund.
I am a newbe here, so I might not yet be using the right "lingo" properly, but the SQ was similar to my ears with my UE 5 Pro's - they both hiss too much at idle. The other reason I returned the iTouch was that the screen was actually too small for long usage - I would get eye strain from reading the small screen, or after watching a complete movie in the plane. Also, for just listening to music, the iTouch is just plain heavy. Even though I loved the user interface, you can't just use the controls without having to look and touch exactly in the right place - something that is trivial with a device with real/tactile buttons.
For me the iTouch did a couple of things well, but nothing "great" enough for me to keep it. I am now looking for another player that has little no hiss, maybe from other brands besides Apple ...
Will