I have an old gen1 and I use it with a Yamaha music player in the dinning room. It's especially cool for that as the gen1 had the Wolfson audio chip which most agree is the superior chip for music in iPods.
You can also use yours for a player in the car if so equipped and you won't have to worry so much if it gets stolen. I'd never sell mine, it's still great.
Why not give it to a family member or friend who would love to use it, thats what I do with most of my old gear, especially since not everyone spoils themselves, it'd be a fun gift to give!
I made a thread like this before and lots of people offered great suggestions. I still ended up boxing my iTouch 2 though. Im using my iTouch 4. I used quotes because only use it on that rare moment when I have nothing to do at the gym but cardio due to massive soreness all over my body from weight lifting. At that point I use it for watching video as I run on the treadmill.
Older hardware is great for use in your car, I have a 60Gb iPod photo in one car and an 8Gb Nano in my other car = they get broken into and stolen its not my newest toy being taken...
I also have given older hardware to family and friends for their younger childern when I've had the urge to upgrade unnecessarily