A touch screen for a device that is frequently stuck in a pocket or otherwise pressed and abraded against surfaces doesn't seem like a good idea. Just my two cents.

As far as iPods, they're very high utility tech devices IMHO. We've just bought a portable DVD player that will dock an iPod, which opens up a vast amount of free podcast type content to entertain the little one on trips. Of course it's also a portable HD, photo album, etc. iTunes just rates acceptable, but they've got more music and other content than any other service by a long way. Quite frankly even if the iPod were an inferior device I would probably compromise on it in order to have the broader selection of their library.