You can use any headset (needs to have four rungs of metal on the jack), and the only app that works right now is called SPECTRUM 

AWESOME!
Edit: Videos: It works! -- Yes, it is a 2G iPod Touch -- With Music
Update: A free app called Palringo Instant Messenger supports recording and sending audio clips to your friends from the iPod Touch using the same headset/microphone I used in the video!
Video: iPod Touch + Palringo IM
Edit: Videos: It works! -- Yes, it is a 2G iPod Touch -- With Music
Update: A free app called Palringo Instant Messenger supports recording and sending audio clips to your friends from the iPod Touch using the same headset/microphone I used in the video!
Video: iPod Touch + Palringo IM