Fabulous bit of kit, so cool and useable you'll be kicking yourself for not buying one a long time ago. Music, dozens of downloadable apps (some free, some to buy), games and wi-fi make this a must have for the home and the train. It is definitely worth investing in better headphones - have you noticed how they always have Bose cans with the demo models in Apple stores?
Be careful when purchasing as some retailers are still selling the first generation version at full price, as experienced by several customers. However, Apple must take some of the blame for not making the later versions very different to the untrained eye.
For the record, the main differences between the newer an older version are:
Longer battery life
External volume buttons (these visually distinguish it from the 1G model)
Anyway, the earlier (1G) version is being heavily discounted by some sellers. Now costing not that much more than the tiny (non-touch) screened 4G Nano, it is an absolute steal but you may have to hunt one down....