Well, I have both the nano 4th gen (16GB, Black) and the Touch 2nd gen (32GB). I still have my nano 2nd gen (8GB, Black) and gave my nano 1st gen 4GB to my wife. Comparing the different iPods, I think the 4th gen nano gives the best sound, period. The cover-flow-when-turned-on-its-side "feature" is a bug, IMHO. We should have an option to disable it since it could easily have been activated accidentally, draining the battery unnecessarily.
I also found it annoying that the current song name won't be displayed on the screen full-time, like on the 1st and 2nd gen nanos (don't know about the 3rd), unless the backlight is on. If I want to see the song name, I will have to touch the scroll wheel. Otherwise the screen is blank most of the time, except when you set it to energy saver mode off, where it will simply show the clock and battery level. I'd like to see the song name and progress indicator all the time like on previous generations', even when the backlight is off.
Otherwise, the screen clarity and colour fidelity is a huge improvement from the 2nd gen. It also looks much nicer than the fat 3rd gen.